August employment numbers received mixed reviews — some positive, others negative — prompting market experts to wonder if the Federal Reserve is really well positioned to begin tapering its monthly asset purchases.
The 169,000 increase in non-farm payrolls in August was slightly short of the consensus forecast of an 180,000 gain, the gains in the preceding two months were revised down by a cumulative 74,000.
"Our best guess is that the cumulative evidence of improvement over the past year will convince a majority of officials that the tapering should begin at the next FOMC meeting in another couple of weeks’ time, but we’re not going to pretend this is a certainty," said Capital Economics Chief U.S. Economist Paul Ashworth.
The household survey measure of employment shows a 115,000 decline in jobs for August, but an even bigger 312,000 decline in the labor force means that the unemployment rate still edged down to a near five-year low of 7.3%, from 7.4% in July, according to Capital Economics.
Justin Wolfers, associate professor in the Business and Public Policy Department at the Wharton School, believes the jobs report shows the economy is barely creating enough jobs to keep the unemployment rate falling from its current high levels.
"Policymakers have been looking for a signal that the recovery has become self-sustaining. This report doesn't provide it," Wolfers said.
He added, "And until we're confident that the recovery will keep rolling on, we should delay either any monetary tightening, further fiscal cuts, and definitely postpone the legislative shenanigans that Congress is threatening."
The unemployment rate was still 8.1% in August last year when the Fed launched its open-ended third round of quantitative easing.
According to the Federal Reserve Bank of Atlanta, it would take twelve months for the Fed to achieve a target unemployment rate of 7.3%, meaning the average monthly change in payroll employment needed is 98,805 jobs.
The central bank stated in its latest Federal Open Market Committee meeting minutes that Fed officials decided to keep the target range for the federal funds rate at zero to 0.25% and currently anticipates that this low range will be appropriate as long as the unemployment rate remains above 6.5%.
In general, if the economy continues to improve as expected, the committee would moderate the pace of its securities purchases later this year and the members would also reduce the pace of purchases in measured steps, concluding the purchase program around the middle of 2014.
"Overall, with other indicators like initial jobless claims pointing to a strengthening labor market and the activity surveys indicating a pick up in economic growth, we still expect the Fed to go ahead with the taper later this month," Ashworth said.