Labor market gains for September brought the average monthly job growth for the year down below 200,000, which could possibly slow down the heretofore robust activity for the housing industry so far in 2015 and affect the impending federal funds rate increase.
While the national unemployment rate held steady at 5.1 percent from August (the U6 unemployment rate, the broadest measure of unemployment, fell 3 basis points to 10 percent), September saw a gain of just 142,000 jobs, bringing the average monthly total for the first nine months of 2015 down to 198,000, according to the September 2015 Employment Summary released by the Bureau of Labor Statistics (BLS). By comparison, average monthly job gains for the first nine months of 2014 totaled 260,000.
"We had been seeing a level of job creation closer to 3 million on a trailing 12-month basis on average for the last year, but the revisions and the relatively weak September number change that trailing 12-month trend to 2.8 million," said Jonathan Smoke, chief economist for Realtor.com. "Job creation is a very important leading indicator of strong demand for housing. The strong employment results for the last two years created an uptick in household formation, which drives demand for home purchases and rentals. If this softening sticks, we could see less robust growth in the year ahead."
The Federal Reserve Bank of Boston President Eric Rosengren recently commented on the disappointing jobs report in an interview with the Wall Street Journal, noting that September's job performance “highlights that we need to continue to monitor how the data is coming in to determine when it is appropriate” to raise rates.
In the Federal Open Market Committee's (FOMC) September meeting, officials decided to keep the federal funds target rate at zero to 1/4 percent, where it has been for nine years.
"In determining how long to maintain this target range, the Committee will assess progress—both realized and expected—toward its objectives of maximum employment and 2 percent inflation," the Fed said in a statement. "This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments."
Similar to Rosengren's comment about the rate hike, the Committee anticipated that it will be appropriate to raise the target range for the federal funds rate when there is further improvement in the labor market and inflation confidence is restored.
The Wall Street Journal also reported that Rosengren believes that the jobs report is only one factor in a multifaceted situation and "if it is symptomatic of broader weakness in the economy, then we should wait” on raising rates, but "if it is one weak report but not symptomatic of broader weakness in the economy, then I think future meetings should continue to be on the table."
Click here to read the WSJ's full article.