Rising Jobs Tide for Poor Workers May Ease Fed Rate Dilemma

Washington: When the Federal Reserve considers whether the US economy is ready for an interest rate hike on Thursday, policymakers will want to be confident the jobless rate, now at 5.1 per cent, is as strong as it looks. There appear to be reasons for optimism as many poorer and less educated workers are finding jobs or receiving bigger raises. Improvements in the labour market for low income Americans historically accelerate when the economy is closer to full output, which the US central bank considers to be consistent with an unemployment rate between 5.0 per cent and 5.2 per cent. That suggests the Fed is running out of time to begin raising rates - it has kept its benchmark overnight lending rate at near zero since December 2008. The recent turmoil on global financial markets, however, has many investors betting the Fed's policy-setting committee will leave rates unchanged at the end of its two-day meeting on Thursday, choosing to hike instead in December. Traders are now pricing in a 27 per cent probability of a rate hike on Thursday. Low earners were the biggest losers when the jobless rate surged as high as 10 per cent during the 2007-2009 Great Recession. In July, Fed Chair Janet Yellen said the downturn "was particularly punishing to African-Americans and to lower skilled workers more broadly". Some economists argue still-sluggish US wage growth points to economic slack. Participation rate improves Drops in the jobless rate since the last recession have generally been accompanied by declines in the number of people looking for work. But the labour force, defined as everyone with a job or looking for one, has stabilized over the last 12 months - it contracted when the recession put millions out of work. The unemployment rate has fallen by 1 percentage point over the same period. Since early last year, those hardest hit by unemployment appear to have started returning to the labour force as job prospects brightened. The overall participation rate has stabilized at just under 63 per cent, with the participation rate also levelling off for people in the prime working years of 25-54. In another sign of labour market tightening, wages for lower paying jobs have started to rebound. Workers in the leisure and hospitality industries, the lowest paying sectors of the economy, earned an average $12.33 an hour in the 12 months through August, up 3.1 per cent from the prior year and faster than the overall average of a 2 per cent rise. Weekly earnings also have risen across industries for the poorest Americans over the last year and a half. .© Thomson Reuters 2015

Rising Jobs Tide for Poor Workers May Ease Fed Rate Dilemma

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