The weaker-than-expected U.S. jobs report for August should not materially change expectations for the economy, which remains, for now, stuck in a "new normal" low-growth equilibrium.
The data released Friday will amplify expectations of a Federal Reserve that remains looser for even longer, placing downward pressures on market interest rates and the dollar, but that also will have to compete with the latest news from the European Central Bank. And within the Fed, it amplifies the tug of war between those who are worried about lowflation and those concerned about the risk of future financial instability.
Job creation, at 156,000, came in slightly lower than the 180,000 consensus expectations. This was coupled with a downward revision to previous months' numbers. With the secularly low participation rate remaining unchanged, the unemployment rate edged up to 4.4%. Meanwhile, wage growth remained muted, rising only 0.1% and keeping the annual increase at 2.5%.
Given the usual uncertainties that are attached to these monthly numbers, this report should not, in itself, change expectations of an economy that, in the absence of a major policy effort out of Washington, tracks a real growth path of around 2% with muted inflation. It will, however, solidify market expectations of a continued dovish Fed, including a lower endpoint for the neutral rate and a longer path to get there, along with a very gradual contraction of the balance sheet.
