Drop in Jobless Rate May Not Deter Fed From Carrying Out Stimulus Program
By Joshua Zumbrun and Shobhana Chandra – Feb 5, 2011
The surprising drop in the U.S. jobless rate to the lowest level in 21 months probably won’t deter Federal Reserve policy makers from carrying out their program to pump $600 billion into the economy, economists said.
Unemployment declined to 9 percent in January from December’s 9.4 percent, the Labor Department said yesterday in Washington. Employers added 36,000 workers, short of the 146,000 median gain projected in a Bloomberg News surveyed of economists, as winter storms deterred hiring.
Fed Chairman Ben S. Bernanke and his colleagues are placing less emphasis the unemployment rate and taking a broader look at the health of the labor market, economists said. Employers added fewer than 100,000 workers a month to payrolls on average in 2010, and 6.2 million people have been looking for a job for more than half a year, underscoring the need for faster hiring.
“My sense is they’ll be on hold, waiting for more information,” said Roberto Perli, who until July was a member of the Fed Board’s Monetary Affairs Division staff. While Bernanke in a speech this week talked about stronger job creation, “we certainly did not get a sense that’s what’s going on from the report” for January, Perli said.
Bernanke said on Feb. 3 that he needs to see “a sustained period of stronger job creation” before he deems the recovery firmly established. The Fed’s Jan. 26 statement said the recovery “has been insufficient to bring about a significant improvement in labor market conditions,” expanding its focus beyond the jobless rate.
“They shifted their rhetoric because they don’t want to be hung out on the unemployment rate,” said Vincent Reinhart, the Fed’s chief monetary policy strategist from 2001 until September 2007.
The drop in unemployment from November’s 9.8 percent rate represented the biggest two-month decline since 1958, the Labor Department report showed. The January jobless rate was the lowest since April 2009.
Treasuries fell for a fifth day and the dollar gained after the report. U.S. benchmark stock gauges returned to the highest levels in more than two years.
Payrolls in construction and transportation, industries most affected by bad weather, declined in January, while factory employment rose the most since August 1998. Private hiring, which excludes government agencies, rose 50,000 in January.
“We’ve got at least 12 months ahead of us before the Fed feels comfortable in terms of a sustained period of job creation because that’s really what they require,” Bill Gross, manager of the world’s largest bond fund at Pacific Investment Management Co., said in an interview yesterday on “Bloomberg Surveillance” with Tom Keene.
“Unless we see that sustained level, that virtuous circle that basically he spoke to, the Fed’s not going to raise interest rates,” Gross said, referring to Bernanke’s speech.
Last month’s gain in employment followed a 121,000 rise in December that was larger than initially reported.
Fed officials who want to end the Fed’s program to buy $600 billion in Treasury securities through June will point to the unemployment rate as a justification, said Reinhart, now a resident scholar at the American Enterprise Institute in Washington. Advocates of the program, called quantitative easing, will point to payrolls, he said.
“An employment report like this is a Rorschach test,” said Reinhart.
Joblessness rose above 9 percent in May 2009, beginning the longest period of unemployment at that level or higher since monthly records began in 1948.
Revisions to previous figures showed the economy lost 8.75 million jobs as a result of the recession. For all of 2010, the U.S. added about 909,000 jobs.
In November, policy makers expected the unemployment rate to fall to 8.9 percent to 9.1 percent in the fourth quarter of 2011. Average hourly earnings rose 0.4 percent in January, the highest since November 2008.
In his Feb. 3 speech in Washington, Bernanke said job gains at companies last year “were barely sufficient to accommodate the inflow of recent graduates and other new entrants to the labor force and, therefore, not enough to significantly reduce the overall unemployment rate.”
“With output growth likely to be moderate for a while and with employers reportedly still reluctant to add to their payrolls, it will be several years before the unemployment rate has returned to a more normal level,” Bernanke said.
Central bankers likely remain wary about improvements in the jobless rate as other aspects of the employment report, such as the share of the population in the labor force, remain grim, James Glassman, senior U.S. economist at JPMorgan Chase & Co., said yesterday on “Bloomberg Surveillance.”
“If you’re sitting at the Fed, you’re not going to be happy with this kind of trend because it’s yet another indirect sign that there’s not enough going on in the job market to keep people in or pull people in,” Glassman said.
— With assistance from Bob Willis and Alex Kowalski in Washington and Tom Keene in New York. Editors: Carlos Torres, Christopher Wellisz