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US job gain projections turn spotlight on rate hike

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September 4
6:46 PM 2015

The latest projects indicating job gains in August are giving a much wider scope for US Fed rate hike speculation. According to research firms, non-farm payrolls were up 220,000 in August from 215,000 in July. Unemployment rate is also at 5.2 percent indicating near seven-and-a-half-year low.

These two positive factors in the US economy could enable US Federal Reserve to consider interest rate hike in the forthcoming crucial meeting on 16-17 this month.

The US Labor Department is poised to release job data on Friday at 8:30am (12:30GMT). The positive development in the US economy underscores the China's economy slowdown and uncertainty in other parts of the world.

Analysts feel that job growth and drop in unemployment rate will keep the prospects for interest rate hike alive until the outcome of Fed meeting. 

According to data provider FactSet, there would be an increase of 220,000 jobs in August and this will make the average addition of 243,000 jobs per month during the past 12 months. Economists also projected that unemployment rate eased from 5.3 percent in July to 5.2 percent in August. 

The present favorable conditions could raise the probability of rising interest rate. If Fed does so, it'll be first time interest rate hike in nine years. Many economists and market analysts have been predicting that there could be rate hike now or after few months. US inflation rate is also below the target of Fed.

There's another possibility also, as analysts feel, the US Fed might think that markets should stabilize first before taking a decision on interest rate hike. 

The encouraging job growth during the past three years has resulted in creation of eight million jobs for Americans. These numbers might satisfy Fed as well, opine economists. 

The job growth in May and June was also pretty good as 14,000 more jobs were created than previously reported. The average working hours per week also increased to 34.6 from 34.5. Wages also rebounded in the job market. These factors leave the door wide open for Fed to take a decision on interest rate hike. 

The job growth pace may not be as it used to be in 2014 as sluggishness in the oil and gas sector. The continuous fall in oil prices forced many projects either get delayed or stopped. This impacted job growth in the US market. 

Analysts also alert on post-rate hike impact. If US Federal Reserve hikes interest rate, it'll lead to rise in borrowing rates and other costs as well. The rate hike will ripple through several layers in the economy. There will also be higher costs of mortgage and other loans.

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