August Jobs Report Disappoints As It Fails To Meet Expectations
After solid jobs growth in June and July, and signs that the economy itself was on the uptick, the Jobs Report for August released this morning is a bit of a disappointment, coming in below expectations, the unemployment rate rising to 4.4%, and significantly revising the previously positive number for the rest of the summer:
Total nonfarm payroll employment increased by 156,000 in August, and the unemployment rate was little changed at 4.4 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in manufacturing, construction, professional and technical services, health care, and mining.
In August, the unemployment rate, at 4.4 percent, and the number of unemployed persons, at 7.1 million, were little changed. After declining earlier in the year, the unemployment rate has been either 4.3 or 4.4 percent since April. (See table A-1.)
Among the major worker groups, the unemployment rates for adult men (4.1 percent), adult women (4.0 percent), teenagers (13.6 percent), Whites (3.9 percent), Blacks (7.7 percent), Asians (4.0 percent), and Hispanics (5.2 percent) showed little or no change in August. (See tables A-1, A-2, and A-3.)
The number of long-term unemployed (those jobless for 27 weeks or more) was essentially unchanged in August at 1.7 million and accounted for 24.7 percent of the unemployed. (See table A-12.)
The labor force participation rate, at 62.9 percent, was unchanged in August and has shown little movement on net over the past year. The employment-population ratio, at 60.1 percent, was little changed over the month and thus far this year. (See table A-1.)
Total nonfarm payroll employment increased by 156,000 in August. Job gains occurred in manufacturing, construction, professional and technical services, health care, and mining. Employment growth has averaged 176,000 per month thus far this year, about in line with the average monthly gain of 187,000 in 2016. (See table B-1.)
Manufacturing employment rose by 36,000 in August. Job gains occurred in motor vehicles and parts (+14,000), fabricated metal products (+5,000), and computer and electronic products (+4,000). Manufacturing has added 155,000 jobs since a recent employment low in November 2016.
In August, construction employment rose by 28,000, after showing little change over the prior 5 months. Employment among residential specialty trade contractors edged up by 12,000 over the month.
Employment in professional and technical services continued to trend up in August (+22,000) and has grown by 262,000 over the last 12 months. In August, job gains occurred in computer systems design and related services (+8,000).
Health care employment continued on an upward trend over the month (+20,000) and has risen by 328,000 over the year. Employment in hospitals edged up over the month (+6,000).
Mining continued to add jobs in August (+7,000), with all of the growth in support activities for mining. Since a recent low in October 2016, employment in mining has risen by 62,000, or 10 percent.
Employment in food services and drinking places changed little in August (+9,000), following an increase of 53,000 in July. Over the year, the industry has added 283,000 jobs.
Employment in other major industries, including wholesale trade, retail trade, transportation and warehousing, information, financial activities, and government, showed little change over the month.
In addition to these numbers, the Bureau of Labor Statistics reported significant downward revisions for both June and July. For June, the number of jobs created was revised downward from +231,000 to +210,000. For June, the number was revised downward from +209,000 to +189,000. This puts the net downward revisions for both months at -41,000 jobs. As I’ve noted before, these revisions are the result of both additional reports received by the BLS after the release of the respective monthly reports and from the recalculation of numbers due to seasonal factors. This means that average job creation for the past three months has averaged +185,000 per month, which is about 10,000 jobs below the previous three-month average. For the year 2017 to date, we’ve seen a total of 1,450,000 new jobs created since January for a monthly average to date of +175,625 which is below where the average stood last month. As we saw last month, two of the strongest areas for job growth continues to be health care services and food and drinking places. In the first category, there have been 328,000 new jobs created this year. In the second, the industry has added some 283,000 new jobs. This means that together, the two industries account for 42% of the new jobs created since January 1st. During his campaign for President, Donald Trump promised to create 25,000,000 jobs during his Presidency. That would require the creation of 3,125,000 per year over an eight-year term for an average of 261,000 new jobs per month. Over a four-year term that would require 6,250,000 per year, for an average of 521,000 new jobs per month. At the current three-month average, it would take 11 years to get to Trump’s goal. At the current average for the year-to-date, it would take just under 12 years. And that assumes no recessions in the intervening period.
Looking deeper into the report, the long-term unemployment rate remained unchanged from the previous month, as did the labor force participation and employment population ratios. This suggests there’s been little change in the nature of the job market from June and July when data appeared to suggest that the jobs picture was improving to some extent, although not sufficiently to completely shed the legacy of the Great Recession. Additionally, and of far greater immediate concern is the fact that wages seem to be stuck in a rut. Average wages for all employees rose just 3 cents to $26,39, meaning that average hourly earnings have risen just 65 cents per hour, a mere 2.5%. In the private sector, the picture is not much better with average hourly earnings rising 4 cents per hour to $22.12. Given the fact that the jobs market appears to be tightening, this is concerning, as Jared Bernstein notes this morning on Twitter:
Don’t freak out over slightly weaker-than-expected report, but do worry about why wage growth remains so unresponsive to tighter job market. pic.twitter.com/ILs5pMjBmt
— Jared Bernstein (@econjared) September 1, 2017
It’s worth noting that none of these numbers for August reflect any economic impact from Hurricane Harvey since most of the surveying for the month was done prior to the time that the hurricane hit. It’s likely, though, that the storm will likely have some kind of impact on the August numbers that could linger into September, especially if the damage to oil and gas industry assets in the Houston area ends up being extensive enough that it takes time to get them back up and running. Additionally, as I noted yesterday, the closure of oil wells and refineries in the Houston area around Houston, as well as pipeline turned off for safety’s sake, have led to increased gas prices in several parts of the country and even rumors of shortages at stations in part of Texas, although the latter appears to be due more to panic-induced buying by consumers rather than actual supply interruptions. These increased fuel prices, although likely to be temporary, could have an impact on the economy in several parts of the country that in turn could have a real, albeit temporary, impact on hiring. Looking further ahead, there are two hurricane systems lurking in the Atlantic, Irma and Jose , that could have an impact on the U.S. East Coast starting late next week. Additionally, Congress returns to work after Labor Day and faces a host of work that must be done, including passage of a budget and debt ceiling increase. Their ability to get anything done in these areas is likely to have a real impact on economic confidence at least in the short term.
Reuters notes the disappointment in the failure to meet expectations in today’s report, but is still somewhat optimistic:
WASHINGTON (Reuters) – U.S. job growth slowed more than expected in August after two straight months of hefty gains, but the pace of increase should be more than sufficient for the Federal Reserve to announce a plan to start trimming the massive bond portfolio it built to support the economy.
Persistently sluggish wage growth could, however, make the U.S. central bank cautious about raising interest rates gain this year. The Labor Department said on Friday nonfarm payrolls increased by 156,000 last month. The economy created 399,000 jobs in June and July.
“We see nothing here that prevents the Fed from initiating its balance-sheet reduction plan at the September meeting,” said John Ryding, chief economist at RDQ Economics in New York.
Average hourly earnings rose three cents or 0.1 percent after advancing 0.3 percent in July, keeping the year-on-year gain in wages at 2.5 percent for a fifth consecutive month.
August’s moderation in employment growth, which pushed payroll gains below the 176,000 monthly average for this year likely reflects a seasonal quirk as well as a dearth of qualified workers. Over the past several years, the initial August job count has tended to exhibit a weak bias, with revisions subsequently showing strength.
“There has been a clear tendency for the August data to be underreported initially and revised up later,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York.
Still, August’s gains were far more than the 75,000 to 100,000 jobs per month needed to keep up with growth in the working-age population. Underscoring labor market strength, manufacturing payrolls surged by 36,000 job, with the motor vehicle sector adding 13,700 positions.
Construction employment jumped by 28,000 jobs last month. That was the largest gain since February and came despite a lull in homebuilding activity and home sales.
While last month’s job gains likely keeps the Fed on course to outline a plan to start shrinking its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities at its Sept. 19-20 policy meeting, tepid wage growth casts doubts on a December interest rate increase.
The anemic wage gains came on the heels of a report on Thursday showing the Fed’s preferred inflation measure, the personal consumption expenditures price index excluding food and energy, increased 1.4 percent in the 12 months to July – the smallest rise in just over 1-1/2 years.
So, a disappointing report, but perhaps one that will see a bounce back in September.