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It seems appropriate to be talking about the August jobs report as we head into the Labor Day weekend. This report certainly has been a market mover so far today, but I’m not sure there’s much news here.
Jobs report a mixed bag
The important, headline points from the data are as follows:
- Jobs increased by 173,000, which was below the expected 217,000 level and down from the prior month’s estimated increase of 215,000.
- July’s jobs gains, however, were revised up from the initial estimate of 215,000 to 245,000, and June was revised up by 14,000—more than making up for the shortfall this month.
- The unemployment rate dropped to 5.1 percent from 5.3 percent, which is good. The problem is that it dropped because people left the labor force, which is bad.
- The underemployment rate also dropped, to 10.3 percent from 10.4 percent, and that is good with no qualifier.
Digging deeper into the numbers
There are some additional takeaways in the details that are worth a closer look:
- Much of the decline in the jobs report came from manufacturing, where there was a reported loss of 17,000 jobs. Manufacturing has been hit by weakness abroad, as well as by the strong dollar, so this decline doesn’t necessarily mean anything about the domestic economy.
- Average weekly hours worked remained at 34.6—an indication that employers continue to work existing employees hard. Combined with the upward revisions to previous job creation numbers, this stat also suggests that labor demand remains quite strong.
- Average hourly earnings were up by 2.2 percent over the previous year. This was up slightly from a 2.1-percent increase in the prior month and supported by reasonably strong growth of 0.3 percent in August.
From a big-picture perspective, the employment report wasn’t great, but it wasn’t terrible either, despite the disappointing headline result. It’s also worth noting that August has historically been a volatile month for the jobs report. And news from outside the U.S. might well have affected hiring in the short term, too.
The Fed—will they or won’t they?
If there isn’t much news in the data, there is news in its potential impact on the Federal Reserve’s decision whether to increase interest rates this month. Unfortunately, this report does not clearly push the Fed one way or the other.
That said, the Fed does need to take note of the employment picture soon, if not this month. The current unemployment rate of 5.1 percent is right in the middle of the range that the Fed considers “full employment,” which is 5.0–5.2 percent. While the Fed can—and has—changed this range, we are still very close to where we need to be, and the Fed is increasingly being forced to respond.
So, if I had to use one sentence to characterize this report, I would say that we are still moving back to normal. In a turbulent time, with memories of the financial crisis still fresh, you know what? I’ll take it.
Have a wonderful Labor Day holiday with your families and friends. I’m grateful to live where I do, do what I do, and work with the people I do. I hope you are as well.
