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The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.

Authors for macroblog are Dave Altig, John Robertson, and other Atlanta Fed economists and researchers.


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December 03, 2004


A Weaker Than Expected Jobs Report: Now What?

The employment report for November is in, and it continued the string of expectations-defying job-market news.  From Bloomberg:

Employers added 112,000 workers in November, the Labor Department said. They were expected to add 200,000 jobs, according to the median estimate of 75 economists surveyed by Bloomberg News. Traders and investors expected an addition of 220,000 jobs, an auction of economic derivatives indicated.         

``People still think the Fed will raise rates (this month), but after today's numbers, they are paring expectations on how much the Fed will increase rates next year,'' said Scott Gewirtz, co-head of U.S. Treasury trading at Deutsche Bank Securities in New York.         

Just yesterday, the Wall Street Journal's Greg Ip suggested the FOMC was all but settling in on a more aggressive trajectory for the funds rate, absent a weak employment report.

A growing number of Federal Reserve officials believe inflation risks are on the rise -- a shift in sentiment that will likely keep the central bank raising interest rates at its next few meetings.

Officials cite several reasons for their newfound concern: slowing productivity, the lower dollar, high energy and commodity prices, recent inflation data, and anecdotal evidence of businesses raising prices.

The shift in sentiment means the Fed probably won't pause in its campaign to raise interest rates to a more normal level any time soon, though that could change if November's job report, due out tomorrow, is disappointing.

At least today, the market seems to be betting that the report was disappointing enough to take at least some of the steam out of the nothward interest rate march. Again, from Bloomberg.

U.S. Treasury notes rose the most in four months after the economy created fewer jobs than forecast, tempering speculation the Federal Reserve may be poised to accelerate the pace of interest rate increases.         

The surge ended a slump that pushed the benchmark 10-year note lower in each of the past seven trading days in New York, the longest such streak since March 2002.         

This report ``keeps the bottom from falling out of bond prices,'' said Andrew Harding, director of taxable bonds at National City Investment Management Co. in Cleveland. The probability of seeing an unbroken string of rate increases over the next few months ``has gone down marginally,'' he said.         

You can understand why "marginally" might make sense.  The less-than-gangbusters employment report doesn't change this observation made in the Ip article:

... a variety of factors has put inflation back on many officials' radat screens.  The "core" consumer-price index, which excludes the volatile food and energy categories, rose a more-than-expected 0.3% in September and 0.2% in October, lifting the annual increase to 2% from 1.7%.

Other not-so-great inflation signs showed up in the other economic news of the week.  So we seem to be left with nervousness on both the inflation front and the real growth front.  These are the times that try central bankers' souls.

UPDATE: If you are a detail type, but want something just a bit more concise than the BLS report linked to above, Vox Baby breaks down the employment stats for you.

December 3, 2004 in Data Releases , Federal Reserve and Monetary Policy | Permalink

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