News Column

Fed Sees Slack in Labor Market, May Keep Rates Low

August 1, 2014

Baystreet Global Markets

Employment application (file image)
Employment application (file image)

U.S. job growth slowed in July and an unexpected rise in the unemployment rate pointed to some slack in the labor market that could give the Federal Reserve room to keep interest rates low for a while.

Non-farm payrolls increased 209,000 last month after surging by 298,000 in June, the U.S. Labor Department said on Friday, hiking the jobless rate to 6.2% from 6.1% the previous month.

Data for May and June were revised to show a total of 15,000 more jobs created than previously reported, showing underlying momentum and taking some of the sting from the report.

U.S. stock index futures pared losses on the report, while the dollar fell to a session low against a basket of currencies. U.S. Treasury debt yields dropped.

July marked the sixth straight month that employment has expanded by more than 200,000 jobs, a stretch last seen in 1997. The one-10th of a percentage point increase in the unemployment rate to 6.2% came as more people entered the labor market, a sign of confidence in employment prospects.

Average hourly earnings, which are being closely monitored as a potential signal of reduced slack that could prompt the Fed to raise rates, rose only one cent.

That left the annual rate of increase at 2%, still well below the levels that would make Fed officials nervous.

Fed officials on Wednesday cautioned that "significant" slack remained, signaling patience on the rate front.

Economists polled by Reuters had expected payrolls to increase 233,000 last month and the unemployment rate to hold steady at 6.1%.

A separate report from the Commerce Department showed inflation retreating in June. A price index for consumer spending, excluding food and energy, edged up 0.1% after gaining 0.2% in May.

The core personal consumption expenditures price index, which is the Fed's preferred inflation measure, increased 1.5% in the 12 months through June, still below the central bank's 2% target.

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Original headline: U.S. job growth cools in July



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