US labor market disappoints, renews doubt about Fed

The US labor market disappointed with a payroll increase of only +142k in September. Furthermore, the payrolls for previous months have been revised down by a net -59k. These data put renewed doubt on a Fed lift-off already in 2015. However, many FOMC members have leaned out of the window recently to indicate a first rate hike for one of the remaining two meetings in 2015. It probably takes somewhat more to dissuade them for seeing through this plan.

Nonfarm payrolls increased by 142k in September, well below (forecast 210k, consensus 201k). In contrast to the usual pattern in previous years, August payrolls were revised down to +136k. Therefore, employment gains definitely slowed down over the summer. In 2015 so far, payrolls increased 198k per month on average, after +260k in 2014. The unemployment rate was stable at 5.1%. In unrounded terms, it even declined from 5.112% in August to 5.051% in September.

A slower pace of job generation was to be expected for 2015. The economy, after all, is nearing full-employment. There is simply not so much scope for generating huge job gains in this environment, other than in earlier phases of the recovery with ample unused capacities. Having said that, the recent deceleration is certainly more pronounced than expected. Companies might get somewhat more cautious due to the global economic problems (China and all). However, the domestic economy seems to be in good shape, with personal consumption robust in particular. Construction spending - with the exception of oil and gas-related building activity has also been rising healthily. Thus, one should perhaps not read too much into the slowdown of hiring.

"Today's data obviously provide ammunition for the FOMC's doves to push for a delay of lift-off. Since many of the Fed's high and mighty went on air recently suggesting a first rate hike in one of the two remaining meetings in 2015, the credibility of the Fed's communication is on the line if they again don't move. Thus, today's job report might not be enough to prevent lift-off in 2015. We stand by our prediction of a December rate hike", says Commerzbank.