On Friday, the Labor Department reported that the economy gained just 169k jobs. in August. Economists had expected the economy to gain 180k jobs for the month. Even this optimist number is below the amount needed each month to keep pace with population growth. The weaker than expected number shows the economy has not generated meaningful growth. The unemployment rate dropped down to 7.3% as more Americans left the labor force.
The percentage of adults in the labor force, the labor-force participation rate, fell to 63.2%, the lowest level since the Carter Administration. Jobs gains in June and July were revised downward significantly. Combined the economy gained 74k fewer jobs than originally reported.
Markets were closely watching Friday’s report for an indication of how the Federal Reserve will respond later this month. For a year, the Fed has been pumping $85 billion a month into the market, in a bid to boost the economy. That level of stimulus is unsustainable in the long term, and the Fed has given signals it will reduce its purchasing of bonds in September.
Friday’s report presents the Fed with a dilemma. It can’t keep pumping nearly a $1 trillion a year into the market. The economy, however, is far from being able to stand on its own. This will not end well.