August Jobs Report Falls Below Expectations At +130,000 New Jobs
The August Jobs Report came in below expectations as other economic statistics point to a slowing economy.
With the economy sending mixed signals about its future direction other than to make clear that a recession within the next year seems unlikely, Wall Street traders, politicians, and analysts have been looking to the Jobs Report to give us an idea on where the economy might be headed, at least in the short-term. Throughout most of 2018 we experienced solid, albeit not spectacular, jobs growth, which led many analysts to wonder if we had entered a new phase of “full employment” where jobs growth would slow down somewhat as employer and employees both assess that we’ve reached a point where new job opportunities are going to be rarer than they were when the post-Great Recession recovery was still young. Additionally, many analysts have turned their attention away from the employment numbers themselves and are paying attention to wage growth, which has remained somewhat stagnant in a range of 2.5% to 3.0% annual growth for the past several years.
The new year, though, seemed to open with a bang thanks to a much better than expected January jobs report that defied even being impacted by the five-week government shutdown that did not end until late January. That enthusiasm was scaled back to some degree in February, which saw largely disappointing jobs numbers during the shortest month of the year. Things bounced back in March, though, with the Department of Labor reporting the creation of 196,000 jobs, although the unemployment rate itself remained stable. There were also some slight upward revisions for January and February, but nothing substantial. In April, we ended up with stronger than expected jobs growth as well as some continued positive signs of wage growth, which had been lagging for much of 2018. Then came May with a report of much lower than expected jobs growth numbers, which actually caused stock markets to rise at the time in hope that it would spur interest rate cuts from the Federal Reserve Board. Continuing with the see-saw effect we’ve seen in the report all year, though, June bounced back with higher than expected jobs growth while the topline unemployment number remained unchanged. Most recently, the July report came in slightly higher than expectations as the topline U-3 unemployment rate remained unchanged
Heading into today’s release of the July jobs report, though, the expectation was that we would see the jobs market stay within the 2019 average with the creation of roughly 158,000 new jobs which would be roughly consistent with the month’s job creation figures from ADP, whose report indicated that 195,000 new jobs had been created during the month. As it turned out, August’s numbers were short of expectations:
Total nonfarm payroll employment rose by 130,000 in August, and the unemployment rate was unchanged at 3.7 percent, the U.S. Bureau of Labor Statistics reported today. Employment in federal government rose, largely reflecting the hiring of temporary workers for the 2020 Census. Notable job gains also occurred in health care and financial activities, while mining lost jobs.
This news release presents statistics from two monthly surveys. The household survey measures labor force status, including unemployment, by demographic characteristics. The establishment survey measures nonfarm employment, hours, and earnings by industry. For more information about the concepts and statistical methodology used in these two surveys, see the Technical Note.
In August, the unemployment rate was 3.7 percent for the third month in a row, and the number of unemployed persons was essentially unchanged at 6.0 million. (See table A-1.)
Among the major worker groups, the unemployment rates for adult men (3.4 percent), adult women (3.3 percent), teenagers (12.6 percent), Whites (3.4 percent), Blacks (5.5 percent), Asians (2.8 percent), and Hispanics (4.2 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 little changed at 1.2 million in August and accounted for 20.6 percent of the unemployed. (See table A-12.) The labor force participation rate edged up to 63.2 percent in August but has shown little change, on net, thus far this year. The employment-population ratio, at 60.9 percent, also edged up over the month and is up by 0.6 percentage point over the year. (See table A-1.)
Total nonfarm payroll employment increased by 130,000 in August. Job growth has averaged 158,000 per month thus far this year, below the average monthly gain of 223,000 in 2018.
In August, employment in federal government rose, largely reflecting the hiring of temporary workers for the 2020 Census. Private-sector employment was up by 96,000, with notable job gains in health care and financial activities and a job loss in mining. (See table B-1.)
In August, employment in federal government increased by 28,000. The gain was mostly due to the hiring of 25,000 temporary workers to prepare for the 2020 Census. Health care added 24,000 jobs over the month and 392,000 over the past 12 months.
In August, employment continued to trend up in ambulatory health care services (+12,000) and in hospitals (+9,000).
In August, financial activities employment rose by 15,000, with nearly half of the gain occurring in insurance carriers and related activities (+7,000). Financial activities has added 111,000 jobs over the year.
Employment in professional and business services continued to trend up in August (+37,000). Within the industry, employment increased by 10,000 both in computer systems design and related services and in management of companies and enterprises. Monthly job gains in professional and business services have averaged 34,000 thus far in 2019, below the average monthly gain of 47,000 in 2018.
Social assistance employment continued on an upward trend in August (+13,000). Within the industry, individual and family services added 17,000 jobs. Social assistance has added 100,000 jobs in the last 6 months.
Mining employment declined by 6,000 in August, with nearly all of the loss in support activities for mining (-5,000). Retail trade employment changed little in August (-11,000).
General merchandise stores lost 15,000 jobs over the month and 80,000 jobs over the year. Building material and garden supply stores added 9,000 jobs over the month.
Employment showed little change over the month in construction, manufacturing, transportation and warehousing, and leisure and hospitality. Job growth in these industries has moderated thus far in 2019 compared with 2018.
In addition to the numbers above, the Bureau of Labor Statistics reported that total nonfarm payroll employment for June was revised downward from +193,000 to +178,000 and the number for July was revised downward from +164,000 to +159,000. These revisions made for a net downward revision of -20,000 for those two months. Combined with this month’s jobs numbers, this puts the average jobs growth for the past three months at +155,667 net jobs created per month, which is an increase from the previous three-month average.
Based on these new numbers, we’ve seen total job growth in 2019 of 1,271,000 jobs created, for an average of + 158,875 jobs created per month so far this year. By way of comparison, 2018 saw 2,024,000 new jobs created in 2018 as a whole for an average of +166,667 net new jobs per month. Combined with the final jobs numbers for 2017 and 2018, this means we’ve seen a total of 4,223,000 new jobs created since January 1, 2017, a period that has largely coincided with Donald Trump’s tenure as President, for a monthly average over that period of +131,968 new jobs created, which is a slight increase from where this average stood as of last month and roughly similar to what we saw during the final four years of the Obama Administration.
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. Based on the average growth rate we have seen since the start of 2017 it would take nearly sixteen years to reach that goal. Based on the average for 2019 to date, it would take roughly thirteen years to reach that goal. Based on the average for the past three months, it would also take roughly thirteen years to reach Trump’s goal. All of this, of course, assumes that we don’t have even a mild recession during that period. Needless to say, it is unlikely that we’re going to see sustained average jobs growth over the next three to seven years that would put us close to the President’s goal absent a significant change in the nature of the jobs market.
Looking deeper into the numbers, the average workweek across the board was decreased by 0.1 hours to 34.4 hours while average hourly earnings rose 11 cents to $28.11. Over the year, average hourly earnings have risen at an annualized rate of 3.2%. This is a stronger wage growth number than we’ve seen in recent months, and it’s consistent with the increase we saw last month but it’s worth noting that it comes off several months when wage growth was essentially stagnant, so this may just end up being a statistical blip.
As I’ve said before, the relatively slow growth we’ve seen in wage growth could be a sign we’re hitting an equilibrium point in the jobs market that will preclude big jumps in either hiring or hourly earnings on a sustained basis. Looking at other numbers, labor force participation, the long-term unemployment rate inched downward but was relatively stable compared to earlier in the year.
Nelson Schwartz at The New York Times has the takeaway:
The American economy turned in a decent performance last month as businesses grew more cautious about hiring. About 25,000 of the jobs added were temporary positions for the 2020 census.
Along with consumer spending, the labor market has been a source of stability for the economy, even as several gauges have turned downward.
“Many of us are on tenterhooks waiting for this set of numbers,” said Carl R. Tannenbaum, chief economist for Northern Trust in Chicago. “Because of where we are in the business cycle, it’s taken on particular importance.”
Still, the August figures come amid increasing concern that the economy is faltering. The manufacturing sector has been showing signs of weakness, and businesses have been more reluctant to make big investments.
On Wall Street, some short-term debt has been yielding more than longer-term notes, indicating that a recession could be on the horizon. The job report for August is unlikely to allay those worries.
The Federal Reserve is already attuned to signals that growth is slowing. For the first time in a decade, it cut its benchmark interest rates in July by a quarter of a percentage point. The central bank is expected do so again this month.
Analysts expect the Fed to cut its benchmark rate by another quarter-point when policymakers meet in two weeks. But some traders think that the central bank could opt for a half-point reduction.
Kathy Bostjancic, chief United States financial economist at Oxford Economics, said a quarter-point cut was the most likely scenario.
“When you look at the evidence of the impact from tariffs, slowing global growth and manufacturing in the U.S., it appears to be a lock,” Ms. Bostjancic said. “After September, we expect additional rate cuts in October and December as the downside risks are increasing.”
In part, she said, the rate cuts are intended to compensate for the anticipated drag from the tariffs in 2020. She estimates that tariffs will reduce economic growth by more than a half a percentage point next year.
The Washington Post also cited the missed expectations as another sign of concern for the economy:
The U.S. economy added a disappointing 130,000 jobs in August, the Labor Department said Friday, heightening fears that President Trump’s trade war is starting to bite and the U.S. economy is hitting a rough patch.
Economists had predicted 160,000 job gains in August. Business owners say they are struggling to find people to hire, and they are growing increasingly nervous about Trump’s trade battle. The unemployment rate remained at 3.7 percent, the lowest in nearly half a century, forcing employers to search harder for new workers.
Right now, the United States is a tale of two economies: The service sector remains strong with health care and business adding a lot of jobs in August. But industries such as mining and manufacturing that depend heavily on selling items overseas are struggling. Manufacturing is already in a recession, and the sector has added few jobs this year, a trend that continued in August. Mining employment fell by 6,000 jobs.
Hiring in August was also boosted heavily by the U.S. government adding 25,000 temporary workers to its payrolls for the 2020 Census.
Most companies have already scaled back spending on buildings and equipment, and there is concern that they will now cease hiring, a move that could have harmful consequences on the U.S. economy, as consumer spending drives so much of the U.S. economy. When Americans are fearful of losing their jobs, they tend to halt spending.
So far this year, job gains have averaged 143,000 a month, a noticeable downgrade from last year, when job gains averaged 192,000 a month.
“While I’m not concerned about a downturn lurking just around the corner today, it remains a very real possibility further down the line,” said Steve Rick, chief economist at CUNA Mutual Group, in an email.
For now, Americans are spending because “we’re hiring!” signs still appear plentiful in many towns and pay is rising at many companies.
Wages grew at an annual pace of 3.2 percent in August, well above inflation and a slightly better-than-expected pace. The number of hours employees are working also rose, a sign of strength that companies are asking workers to stay later.
While these numbers are positive, the fact that we came in under expectation and that we saw our second month in a row of negative doward revisions in the reports from previous months is something worth paying attention to. Additionally, it’s worth noting that we’ve only seen one month so far this year when jobs growth has been about 200,000 new jobs. Taking that into account, it seems clear that jobs growth is slowing, which could be an indication that the economic recovery, which entered record territory last month, is definitely at an advanced stage. Among other things, this means that we can expect jobs growth further down the line to slow down or at least not significantly increase from the levels we’ve seen over the past several years.
It also means that we should be seeing better wage growth than what we have been seeing so far as employers do what they can to keep employees from straying elsewhere. One of the reasons that may not be happening is that employers may be incentivizing workers through means not measured by wage growth such as better benefits and other enhancements to the working environment. An additional factor at play here is increased productivity due to increases in the use of technology that make a longer workweek or increased hiring unnecessary.
One other factor to keep in mind with respect to this month, and the next few months, is the fact that there is going to be a temporary uptick in employment thanks to hiring for the 2020 Census. In this month alone, that hiring made up roughly one-quarter of the new jobs created for the month, meaning that actual private-sector jobs growth was under 100,000 new jobs for the month. Those census jobs, though, are temporary and the people filling them will begin to be let go roughly starting in the late spring of 2020. At that point, we could actually start seeing negative total jobs “growth” unless private-sector hiring increases significantly.
As we get further into the 2020 election cycle, of course, numbers such as this will become more significant. As I’ve said before, the state of the economy is typically one of the most important factors that voters react to when they vote. As things stand, President Trump’s job approval when it comes to the economy is far better than his general approval level and may well be the only thing keeping him afloat. If that changes, then getting re-elected could become even more difficult than it already appears to be.