Headline nonfarm payrolls rose by 151,000 in August, versus an anticipated 180,000. Meanwhile, the July and June’s revisions are 275,000 and 271,000, respectively. The unemployment rate was unchanged at 4.9%, while the participation rate was also unchanged to 62.8%. There was a rise of 58,000 in the group classified as “not in the labour-force,” following a decrease of 184,000 in July. The U6 unemployment rate (an expanded measure of unemployment that takes into account marginally attached and part-time workers) was unchanged at 9.7% in August. The household survey showed an increase of 97,000 jobs in the month, following a rise of just 420,000 in July. Meanwhile, the adjusted household survey (the BLS’s attempt to make it more comparable to the payroll survey) pointed to a decline of 128,000 after an enormous 1,269,000 in July.
Private nonfarm average hourly earnings were 0.1% higher in August (0.2% for production and nonsupervisory workers) after a 0.3% rise in July. Annually, they are now 2.4% higher (2.5% for production and nonsupervisory workers). This increase was relatively low and shows continues moderate upward pricing pressure. Private aggregate weekly hours for production and nonsupervisory workers were 0.2% lower in the month, after rising by 0.2% in July; they are 1.1% higher on a year ago. The 151,000 change in August’s payrolls was largely due to education and health services (39,000), leisure and hospitality (29,000), government (25,000), and professional and business services (22,000). Meanwhile, the mean duration of unemployment was again lower at 27.6 weeks, from 28.1 weeks in July.
The employment data over the summer months always tends to be a little noisy, due to students, part-time workers, etc. moving in and out of the labour-force. While today’s report was less than anticipated it is still a respectable rise, though the weaker growth in hours worked and earnings will need close watching in the coming months. Payrolls at this point would normally start to moderate as the economy reaches full employment. Hence, despite the unemployment rate being 4.9%, the still large gap in the employment-to-population ratio, in addition to further progress being made in the participation rate, suggest further slack exists. The big question for employment is, what happens to corporate profits? Unsurprisingly, they tend to be highly correlated with employment growth, and despite five quarters of declines, employment growth has held up exceptionally well. Certainly, this is something the Fed should be wary of when it meets on the 21st.
This month’s flat reading in the participation rate was disappointing following recent improvement. It is important for the Fed that this continues to increase, as a large pool of returning workers means less immediate wage pressure, which should allow the agency to keep rates lower for longer and, in turn, allow for a more robust recovery in employment. Hence, a falling participation rate could put more pressure on the Fed to act sooner, as it suggests there are fewer available workers to pick up the slack. The Fed estimates that given current demographics and labour-force participation, payroll growth only needs to be around 80,000-150,000 for the unemployment rate to continue falling. We are still above this range. This will still come as a welcome report to the Fed; consumer spending has been a little lacklustre of late, and more jobs and income should help to shore this up. In terms of raising rates, a September increase is still on the table, though the flat participation rate does give it further room to wait, which in our view would still be the best choice under current conditions.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.