August Employment Report

KEY DATA: Payrolls: +1.371million; Private: +1.027 million; Federal Government: +251,000; Retail: +249,000; Unemployment Rate: 8.4% (-1.8 percentage points); Wages: +0.4%

IN A NUTSHELL: “The labor market continues to heal extremely rapidly.”

WHAT IT MEANS:  The continued reopening of the economy is working its magic in the labor market. In August, job gains were robust and the increases were spread across the economy.  Indeed, an extremely high 69% of the 258 industries measured saw payrolls rise.  And the details were quite strong as well.  There were huge job gains in general merchandise stores, restaurants and temporary help companies.  All three added over one hundred thousand workers.  Health care payrolls boomed as doctors’ offices reopened.  But the largest gain was in the public sector. The federal government hired 238,000 temporary census workers to try to complete the census, which is behind schedule.  In contrast, sectors such as construction and manufacturing added more moderate numbers of employees.  Given the ramping up of vehicle assemblies and the surge in home construction, that could change soon.  

On the unemployment front, there was a surge in the number of people employed, over 3.7 million, and the number of people unemployed dropped by 2.8 million, leading to a surprisingly large decline in the unemployment rate.  This occurred despite a rise of nearly a million in the labor force and a solid increase in the participation rate.  In other words, all the metrics were great.    

Finally, there was good news in the report for workers.  Hourly wages rose solidly and the workweek was up, meaning that weekly earnings rose strongly.  

IMPLICATIONS:This was a strong report that shows the recovery remains on track.  The labor market has come back faster than expected and we are seeing improvement in all segments of the economy and the workforce.  But as usual, the question of whether these gains are sustainable remains.  The unemployment rate is still about five percentage points above where it was in February and payrolls are down by 11.5 million workers.  There is still a lot of work to do.One thing this report does is complicate the negotiations over another stimulus package.  For those who, after having voted to explode the budget deficit, have suddenly remembered that they don’t like government welfare payments, this report could strengthen their resolve to deny another package gets passed, since the need is not nearly as great as it had been.  But it also undercuts the arguments of those who support additional massive government stimulus, that the economy is a disaster.  It is, when looked at on an absolute basis, but relatively speaking, it is not as big a disaster as it had been.  In politics, what passes for reality is, well I have no idea, so any and all economic views are likely to be presented.  Consequently, it is unclear where we go from here in those discussions.  As I noted yesterday, it is uncertain which month we might start seeing the negative effects of the ending/running out of the stimulus payments.  There were no signs of that in the August employment report.  But if we have to wait for October to get the negative numbers that might trigger an agreement, and given it takes time to get any further stimulus into the system, the risks to growth remain to the downside.  Nevertheless, the markets are likely to see in this report the improvement in the economy and given that good news is great news, mediocre news is very good news and bad news is good news, don’t be surprised if investors continue to party.