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Bill Gross: ‘50-50’ Chance of Rate Hike as Jobs Numbers Released

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Heading into the Labor Day weekend, Labor Secretary Tom Perez said that the August jobs report, released Friday, shows the “strong and steady recovery of the U.S. economy” as the nation added 173,000 new jobs, with the August unemployment rate at 5.1%, down from 6.1% a year ago.

August, Perez said, “was the 66th consecutive month of private-sector job growth, with private employers having now created 13.1 million jobs since the beginning of 2010.”

The Friday jobs report will be the last one Federal Reserve Board officials will see before they meet later this month to debate a potential interest rate hike.

Janus fund manager Bill Gross told Bloomberg Radio Friday morning as the jobs report was released that he sees a “50-50” chance that the Fed will raise rates on Sept. 17, with “China and global conditions” being the “dominant factor” if a rate hike occurs.

When asked “what matters most” to Federal Reserve Board Chair Janet Yellen, Gross replied: “Financial conditions, although she wouldn’t place it number one in a press conference.”

While Yellen thinks that “growth is fine,” Gross opined, she believes “unemployment is pressing limits, and inflation ultimately will move to 2%.”

Yellen, he continued, is concerned about “imbalances in financial conditions. That means stock prices. That means yield spreads. That means money moving into various asset classes that suggest some type of potential bubble. And so financial conditions are the key for her Fed, and perhaps [the Bank of England].”

Perez noted that different sectors of the economy saw growth in August, like health care, a sector that includes traditional occupations like nursing and emerging fields like health IT. Local governments, he continued, “were also hiring, creating thousands of jobs such as teachers as our children head back to school in the fall.”

Brad McMillan, chief investment officer of Commonwealth Financial Network, noted in his Friday commentary that while jobs increased by 173,000, that was below the expected 217,000 level and down from the prior month’s estimated increase of 215,000.

July’s jobs gains, however, were revised up from the initial estimate of 215,000 to 245,000, and June was revised up by 14,000 — more than making up for the shortfall this month, McMillan said.

Also, while the unemployment rate dropping to 5.1% from 5.3% is good, “the problem is that it dropped because people left the labor force, which is bad,” he added.

The underemployment rate also dropped, to 10.3% from 10.4%, “and that is good with no qualifier.”

McMillan said however, that the August jobs report “does not clearly push the Fed one way or the other.”

That said, “the Fed does need to take note of the employment picture soon, if not this month.”

Why? “The current unemployment rate of 5.1% is right in the middle of the range that the Fed considers “full employment,” which is 5.0% to 5.2%. While the Fed can — and has — changed this range, we are still very close to where we need to be, and the Fed is increasingly being forced to respond.” McMillan added: “If I had to use one sentence to characterize this report, I would say that we are still moving back to normal. In a turbulent time, with memories of the financial crisis still fresh, you know what? I’ll take it.”

The Friday jobs report comes a few days before Congress gets back to work on Tuesday. First up for lawmakers will be hashing over appropriations bills and averting a government shutdown.

Rep. Chris Van Hollen of Maryland, ranking member of the House Budget Committee, noted that while 5.1% unemployment “is the latest evidence of how far we have come since the depths of the recession,” it also shows “how much we have to lose if the GOP causes another self-inflicted wound to our economy by shutting down the government over women’s health care” by defunding Planned Parenthood.

“The uncertainty generated when the U.S. government shuts down creates damaging ripple effects across the country and taxpayers stand to lose billions of dollars,” Van Hollen said. “I will work tooth and nail to prevent Republicans from using the threat of a government shutdown to defund women’s health care, just like we prevented them from using this tactic to end the Affordable Care Act.”

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