An unexpectedly poor jobs report yesterday that included significant downward revisions for employment in June and July has brought uncertainty to the market, and has analysts questioning the timing of the Fed's plan to taper its $85 billion bond-buying program later this month.
The U.S. economy added just 169,000 jobs last month, below analysts' estimates, while the number of jobs added in June and July was revised down by 74,000, the Labor Department said.
The lower-than-expected numbers are likely to cause Federal Reserve Bank chairman Ben Bernanke to think twice about tapering the central bank's $85 billion bond buyback program later this month, experts said.
"A good report would have sealed the case for tapering to being in September," said Nigel Gault, co-chief economist at the Parthenon Group. "The report has thrown everything up in the air."
The central bank was expected to begin tapering its bond-buying program — credited with keeping interest rates low — after its meeting Sept. 17 and 18.
"This report really questions whether the Fed should be doing that," Gault said.
The jobless rate fell to 7.3 percent, but only because labor force participation fell to 63.2 percent, its lowest level in 35 years.
Bernanke has set a target unemployment rate of 7 percent, but Gault said that number does not hold much significance after yesterday's report.
"It's not going to take that long to get the unemployment to 7, but it's getting there for the wrong reasons," he said.
"The Fed's got themselves in a bit of a pickle in my view."
With labor force participation at its lowest level since 1978, Frank Conte of the Beacon Hill Institute said "prospective workers have little confidence about the ability of this economy to create full-time jobs."
Yesterday, two members of the Federal Reserve panel responsible for voting on tapering came out on opposite sides of the issue.
Charles Evans, president of the Chicago Fed, spoke before the job numbers were announced and expressed concerns about the strength and momentum of the economy. Esther George, president of the Kansas City Fed, speaking after the job numbers were announced, called for tapering of $15 billion a month.
Gault still expects the Fed to begin to taper, but not as aggressively as they otherwise would have.
"There's a huge question mark there," he said. "It does suggest that maybe the path to tapering could be a bit longer than anticipated."
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