August Employment Report

KEY DATA: Jobs: 130,000; Private: 96,000; Revisions: -20,000; 3-month ave.: +156,000; Unemployment Rate: 3.7% (unchanged); Wages: +0.4%

IN A NUTSHELL:  “The softening in job growth should surprise no one but it doesn’t mean the economy is headed toward a recession right away.”

WHAT IT MEANS:  The job slump, if you want to call it that, continues.  In August, payrolls rose moderately, though much of the gain was from government hiring.  The decennial census temporary job surge is starting and that added 25,000 workers, so you can say the top line number was even weaker than it looks.  Indeed, the relatively modest private sector gain better matches what happened.  But the details are hardly negative.  Health care, professional and technical services, finance and construction all posted solid increases in payrolls.  Manufacturing was up a touch as well.  But retail keeps shrinking and transportation and warehousing, which were expected to lead the way, has been largely flat lately.  That may be an early sign that the slowdown is gaining steam.  Another concern is that only 53.5% of the industries posted gains.  That was the second lowest percentage in 9.5 years, a further sign that firms are becoming more cautious in their hiring.

As for the unemployment rate, that was unchanged as a surge in workers into the labor force was largely absorbed.  The participation rate moved up, which is nice to see.  But maybe the best data came from the hours worked and wages section of the report.  Hourly wages were up a strong 0.4% and a solid 3.2% over the year.  With hours worked rebounding, weekly earnings surged 0.7% and have risen 2.9% over the year.    

MARKETS AND FED POLICY IMPLICATIONS:  I guess if you forecast something long enough, it will eventually come true and that is the case with the slowdown in job growth.  I, and most of my colleagues, have been expecting the large job gains we saw last year fade into the past. Well, we are adding workers at a slower pace that is more consistent with the expansion.  But it is clearly enough to keep the unemployment rate from rising.  Thus, while this is not a very good report, it is hardly a bad one, especially given the rebound in earnings.  Households still have the income to keep spending and I suspect their level of confidence, which has been shaken by the trade war, will likely either stabilize or slow its decline.  This report also has something for everyone at the Fed.  If you want to cut rates, just cite the more modest payroll rise.  If you want to keep rates stable, point to the strong gain in income.  Indeed, that is the exact conundrum the Fed faces.  The data have moderated and in some cases softened, but they are hardly pointing to a recession.  Yet the Fed’s fearless leader, Jay Powell, seems to be quaking in his wing tips.  And the markets are screaming for a fifty basis point reduction.  The data do not support a half-point rate cut and the disagreements at the Fed are likely to restrain a move greater than a quarter point.  Still, Chair Powell may claim to be data driven but he is flying by the seat of his pants and that may be on fire.  So don’t rule anything out except maybe no move.  The low number of jobs added probably has taken that off the table for the September 17-18 FOMC meeting.