WASHINGTON (Reuters) - The weak U.S. September jobs report published Friday is another sign that Federal Reserve policy may be uncomfortably tethered to the strength of the global economy, as a year long swoon in exports helped wipe out manufacturing jobs and slow employment growth.
As it tries to engineer the first U.S. interest rate increase in nearly a decade, the Fed wants economic growth to stay even marginally above what is viewed as its long-term trend of around 2.0 percent. That would allow the country to continue to make up ground lost during the 2007 to 2009 financial crisis and put as many people to work as possible.
Though exports only comprise about 13.5 percent of U.S. gross domestic product, it has been one of the sources of strength during the recovery, fueling hiring and adding to GDP.
With the U.S. dollar gaining more than 20 pct in the past 18 months though, making exports more expensive for foreign buyers, that support for economic growth is now lagging.
Policymakers have for a year expected the impact of the rising dollar, falling oil prices and other outside factors to fade, clearing the horizon for an interest rate hike, but it has yet to happen.
The weak September job numbers “reflect the deceleration in activity abroad and, more recently, the pickup in financial market volatility domestically,” analysts at Barclays wrote in an analysis of the latest employment report. “It takes more than just a few months for these pot holes in global growth and uncertainty to fade.”
The Fed delayed a September rate rise after volatility in global markets and evidence of a slowing Chinese economy made policymakers want to be sure the U.S. was not on the verge of a new slowdown.
“Like any good central banker they are not going to let one report dictate,” said Tom Porcelli, chief U.S. economist with RBC Capital Markets. But “if you have a weak report here in combination with some of the other weakness that we are seeing across the globe, the odds get dinged for December.”
The next Federal Open Market Committee meeting is due in just over three weeks on Oct. 27 and 28, and there has been little consolation in the U.S. data so far. Markets continue to seesaw, there has been bad news from Japan and Europe, and now U.S. job creation may have slowed.
That almost certainly takes October off the table for a rate rise, analysts and investors indicated on Friday, but it could push the Fed into 2016 as well.
Minneapolis Federal Reserve bank president Narayana Kocherlakota used the jobs report on Friday to bolster the case he has been making for a delay in any rate hike until it is clear inflation is rising, something he feels could take years to happen.
San Francisco Fed chief John Williams, meanwhile, discounted the weak report, saying he felt that as long as the economy generated 100,000 jobs or more each month it was at least keeping pace with new job market entrants and population growth.
Indeed there were other ways to interpret the report.
Although job creation disappointed, nearly half a million part time workers moved into full time jobs, a marked improvement in a data point the Fed watches closely. New job creation, in other words, may have been muted by companies improving the status of part time workers.
The slowdown in hiring may also indicate the economy was nearing full employment, making it harder for companies to fill new positions.
“There is no way to know the answer at this stage, and so the Fed will wait, “ said Cornerstone Macro economist Roberto Perli.
Reporting by Howard Schneider; editing by Clive McKeef