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Mortgage News You Can Use Soft US job market seen postponing day of Fed hike
NEW YORK, Feb 6 (Reuters) - The odds of the Federal Reserve increasing short-term U.S. interest rates this summer lengthened on Friday after the all-important monthly payrolls report disappointed for the third month in a row. Futures markets pared expectations of a rate hike at the Fed's policy meeting in June after the government reported a weaker-than-forecast 112,000 jobs were created in January, and economists speculated that job growth was unlikely to be impressive enough in coming months to justify a rate hike. The key concern is that although the U.S. economy is growing rapidly, companies are still proving reluctant to hire, which will eventually depress consumer spending. This could slow the overall economy and force the Fed to keep rates down even longer to spur growth through cheap credit. "We were expecting the first rate rise in June, but right now I think we're going to push it out till after the presidential elections (in November)," said Mark Vitner, senior economist at Wachovia Securities. "I don't see how you're going to raise interest rates in a presidential election year when there's not much new job growth. The Fed had a hard enough time doing that in 1994 after a year of decent job growth," he said. After revisions, the U.S. Bureau of Labor Statistics figures show job growth has averaged just 73,000 a month over the past five months, and has yet to recoup even the jobs lost in the first half of last year. That is despite economic growth averaging 6 percent in the the second half of 2003. Around 2.3 million jobs have been lost in the past three years. As long as job growth remains sluggish, there is a risk the economy will falter. "This is the weakest job creation rate relative to economic growth on record," said Steven Wood, chief economist at Insight Economics. "If you don't get the employment gains, you have an economic recovery that's not going to sustain itself," he said. Economists reckon it takes around 150,000 jobs a month just to keep pace with population growth. The last time there was an increase that size was in November 2000. Wall Street analysts are split over whether the Federal Reserve will raise the 1.0 percent federal funds rate this year or next. This level is the lowest since 1958. With elections looming, many analysts think the Fed would prefer not to enter the fray in the months close to election day. That thinking suggests that if the central bank has not moved by August, it will wait till after the November vote. "This (payrolls) report was not as devastating as December's but I am just as disturbed, because I am less inclined to write off a second straight disappointment as an aberration," said RBS Greenwich chief economist Stephen Stanley. December's payroll growth was revised up on Friday from last month's paltry 1,000 new jobs to a still anemic 16,000. "If we do not see payroll growth start to pick up toward 200,000 per month by the spring, then the odds will shift toward no (Fed) move all year," said Stanley. Back to Original Article: Mortgage News You Can Use
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