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El-Erian: ‘Wow Jobs Report’ Sets Stage for Rate Hike

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The February jobs report the Labor Department released Friday is further confirmation that beauty is in the eye of the beholder, with economist Mohamed El-Erian much smitten by data that many others find unsightly.

In an interview with Bloomberg TV, the chief economic advisor to Allianz called it a “wow jobs report,” even as his Bloomberg interlocutor Betty Liu expressed despondency about stagnating wage growth.

Other analyses, particularly of a conservative hue, were apt to focus on the labor force participation numbers, which continue to hover at levels from the 1970s era, before women and boomers filled labor force ranks in large numbers.

But El-Erian called both wage growth and labor force participation mere “blemishes” that should not obscure the key takeaway that this is the 12th consecutive month of more than 200,000 added jobs.

That this now yearlong momentum in jobs continued amid “a relentlessly strong dollar and bad weather” makes the feat of a three-month employment moving average of almost 290,000 all the more remarkable in El-Erian’s eyes.

The Allianz economic advisor views the jobs expansion as highly significant from a policy point of view because it opens the “way for a rate hike by or at the September meeting” of the Fed’s rate-setting body, the Federal Open Markets Committee (FOMC).

U.S. monetary policy has been stuck at near-zero rates for more than six years now, since the failure of Lehman Brothers set off the global financial crisis.

Citing Federal Reserve vice chairman Stanley Fischer, who “worries that markets will start to see zero as normal,” El-Erian expects the Fed now has permission, as it were, to commence “a very gradual hiking cycle” beginning with, if not before, the September FOMC meeting.

As for the “blemish” of anemic wage growth,” El-Erian assured his Bloomberg interviewer that “it will come with these strong numbers, so it’s just a matter of time.”

The Allianz economist had no further comment on the labor force participation rate, a source of worry among those worried that government policy ignores, or exacerbates, structural changes in the economy.

Americans for Limited Government, a conservative, small-government advocacy group, argues for increased attention on those Americans not counted as unemployed (i.e. those who are actively seeking work) but rather on the many who have given up looking for a job. ALG’s president Rick Manning warns that most of that group are under age 65 and hence labor force dropouts, not retirees.

“Shockingly, a seasonally adjusted 354,000 more people dropped out the civilian labor force, accounting for most of the drop in the jobless rate. On an unadjusted basis, 56% of those who left according to the agency were under the age of 65. So, while some are cheering this report as being good news, the sad truth is that about a quarter million more Americans gave up hope of finding work.  That is an economic disaster.”

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