A not-so-very-strong-but-decent jobs report in the week ahead will be enough to convince the Federal Reserve to slowly pull back its massive support of the economy.
What is decent job growth? Employers have been erratic in their hiring while also complaining about the lack of labor supply. There are plenty of contributors to the turbulent job market — the role of unemployment insurance, wages, working conditions — but ultimately it is the COVID-19 virus that is driving decisions by companies and workers.
American firms added over 1 million new positions in July. Infections were waning, summer travel was booming, and there was growing relief that perhaps the worst of the pandemic had passed. However, the delta variant was quickly spreading even as the new jobs were created. Come August, hiring slowed down to a fifth of what it had been a month earlier. Just as delta was fast spreading, so too was caution on the part of employers.
Which brings us to September. Schools reopened, a vaccine booster was okayed, and hospitals in many locations were stretched to treat the newly and severely infected. Oh, and Congress returned to a familiar sticking point over flirting with damaging the country’s credit standing. Is that an environment for “decent” job growth? Before the pandemic recalibrated just about everything, adding 200,000 jobs in a month would have been considered a very strong result. Whether or not that qualifies now will be up to the Federal Reserve.
Why does some much rest on deciding was is decent job growth?
“I don't personally need to see a very strong employment report, but I'd like it see a decent employment report,” said Fed Chair Jerome Powell on Sept. 22 when asked about the importance the September data will play in deciding when the central bank will begin tapering its monthly purchases of mortgage and government bonds. This week’s employment data will be the last before the Fed’s next meeting in early November.
It doesn’t mean the Fed is ready to raise its target short-term interest rate. Instead, “decent” jobs data is expected to lead the Fed to begin reducing its pandemic-induced economic support next month. And investors are anxious in anticipation of any action.
