Total non-farm payrolls were up 130,000 in August from July, a gain that is still respectable if below market expectations. However, the net upward revision of 82,000 in the prior two months puts a different complexion on the headline and suggests that the underlying trend for payrolls is still a solid one.
The 96,000 rise in private payrolls was at odds with expectations after the ADP National Employment report signaled a much stronger gains. Goods-producers had a rise of 12,000 powered by renewed demand for construction workers (up 14,000) and a more modest increase for sluggish manufacturing (up 3,000). Mining and logging was lower (down 3,000). Service providers were up 84,000. Professional and business services were up 37,000, of which 15,000 was in temporary workers. Services hiring was broadly softer and some business may be opting to use temporary workers until it is clearer if the economic slowdown is not going to deepen into recession. Government added 34,000 workers, in part as it ramps up for the 2020 census.
The pace of job gains has slowed over the past year. For the third quarter to-date, the monthly average is 145,000, a bit lower than the 152,000 in the second quarter and a further decline from 174,000 in the first quarter. The six-month moving average did regain a bit of lost ground for August at 150,000 but its trend is lower as well.
Average hourly earnings were up 0.4% month-over-month in August and up 3.2% compared to August 2018. Even if employment is slowing, the trend for wages and salaries remains steady and modestly upward.
The unemployment rate was unchanged at 3.7% in August for a third month in a row (3.687% unrounded after 3.712% in July). The U-6 rate was up two-tenths to 7.2%, a change that reflects more people coming into the labor force in August (up 571,000) where rising numbers of employed workers (up 590,000) outpaced the change in the unemployed (down 19,000).
Although these are good readings, there are a few hints that the labor market is a tad less tight. The number of people working part-time for economic reasons was up (up 397,000 to 4.381 million), job losers increased (up 78,000 to 2.876 million), and job leavers were down (down 52,000 to 781,000). These are not outside of normal month-to-month changes, but if a trend is starting to emerge, this could be it.
Nonetheless, the employment-to-population ratio rose to 63.2% in August from 63.0% in July and was the highest since 63.2% in February.
Overall, there is nothing startlingly good or bad in the employment numbers. Gains in payrolls are still good, although the composition of those sectors hiring are less consistent where strength was before. Earnings are still improving steadily, although these may lose momentum if new jobs are fewer and workers have to compete for open spots. The unemployment rate does not point to anything except little slack in the labor market and conditions that continue to draw in marginalized workers.
The FOMC will probably read this data cautiously in the context of other labor market data that suggests that conditions are less conducive to continued hiring in the coming months. However, if less vigorous, there is no immediate reason to worry about the pace of job gains as insufficient to absorb new workers. If next week’s inflation numbers confirm that prices are broadly stable, the September 17-18 meeting will again have to justify any decision to cut short-term rates in terms of preempting a downturn. Policymakers are likely to again be split in their views of the necessity. However, there may be enough evidence that a rate cut is warranted to silence a dissent in the vote.
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