Work cut out

US workers make Fed's job easier

US workers just made the Federal Reserve's job easier. The unemployment rate fell again in August, squarely satisfying half the central bank's economic targets. With the inflation outlook also now stable, moving past a zero interest-rate policy shouldn't be heavy lifting.

Some 173,000 positions were added to the US economy last month. Along with some upward revisions for June and July, that brings the six-month average just above 200,000. At 5.1 per cent, the jobless rate has dropped by a full percentage point over the past year. The country looks pretty close to the so-called natural rate of employment that indicates a healthy labour market.

It should ease some minds on the Federal Open Market Committee, which is set to meet in a couple of weeks to decide if the economy is ready for its first interest-rate rise in nine years. The last time the jobless rate fell to 5.1 per cent following a recession was in May 2005. Then, the Fed increased the federal funds rate by a quarter of a percentage point to 3.25 per cent.

There are nagging fears that today's unemployment rate is misleading. Even if some 1.2 million workers who want a job but aren't in the workforce were added back to provide a more typical participation level, however, the jobless rate only would grow to 5.8 per cent. That's what it fell to in post-recession October 1994 prompting the Fed to raise rates three-quarters of a percentage point to 5.5 per cent.

What's more, for the three months ending in July this year, the jobs situation has improved by other measures. For example, the rate of openings to employment hit 3.6 per cent, the best since January 2001.

Deflation also doesn't appear to be a real threat. Consider the Dallas Fed's trimmed measure of personal consumption expenditure inflation, which removes certain distracting factors. It shows annual inflation at the central bank's two per cent target over the past six months ending in July. The so-called misery index, which combines the rates of unemployment and inflation, is also close to the lowest it has been since the 1950s.

The recent turbulence in China, stock markets and oil prices might have seemed to make the task at hand tougher for US central bankers. The jobs situation suggests otherwise.