August Jobs Report: Another Month Of Later Expansion Deceleration

by: Hale Stewart

By New Deal Democrat

HEADLINES:

  • +151,000 jobs added
  • U3 unemployment rate unchanged at 4.9%
  • U6 underemployment rate unchanged at 9.7%

Here are the headlines on wages and the chronic heightened underemployment:

Wages and participation rates

  • Not in Labor Force, but Want a Job Now: down -53,000 from 5.886 million to 5.833 million.
  • Part time for economic reasons: up +113,000 from 5.940 million to 6.053 million.
  • Employment/population ratio ages 25-54: down -0.2% from 78.0% to 77.8%.
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: up +$.04 from $21.60 to $21.64, up +2.5% YoY. (Note: you may be reading different information about wages elsewhere. They are citing average wages for all private workers. I use wages for nonsupervisory personnel, to come closer to the situation for ordinary workers.)

June was revised down by -21,000, and July was revised up by +20,000, for a net change of -1,000.

The more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were all positive.

  • The average manufacturing workweek fell -0.2 from 42.0 to 41.8 hours. This is one of the 10 components of the LEI and is a negative.
  • Construction jobs fell by -6,000 YoY construction jobs are up +199,000.
  • Manufacturing jobs fell by -14,000, and are down -37,000 YoY.
  • Temporary jobs - a leading indicator for jobs overall decreased by -3,100 (this made a peak in December, but had been stabilizing).
  • The number of people unemployed for 5 weeks or less - a better leading indicator than initial jobless claims - increased by +130,000 from 2,160,000 to 2.290,000. The post-recession low was set 1 year ago at 2,095,000.

Other important coincident indicators help us paint a more complete picture of the present:

  • Overtime was unchanged at 3.3 hours.
  • Professional and business employment (generally higher- paying jobs) increased by +22,000 and are up 542,000 YoY.
  • The index of aggregate hours worked in the economy declined by -0.3 from 113.1 to 112.8.
  • The index of aggregate payrolls fell -0.1 from 163.2 to 163.1.

Other news included:

  • The alternate jobs number contained in the more volatile household survey increased by 97,000 jobs. This represents an increase of 2,571,000 jobs YoY vs. 2,447,000 in the establishment survey.
  • Government jobs rose by +25,000.
  • The overall employment to population ratio for all ages 16 and above was unchanged at 59.7% m/m and is up +0.3% YoY.
  • The labor force participation rate was unchanged at 62.8% and is up +0.2% YoY (remember, this includes droves of retiring Boomers).

SUMMARY

This was a decent report which is positive in most absolute terms, but relatively continues to show late expansion deceleration. Little outside of the headline jobs number was outright positive. Most of the internals were unchanged or declined. Of particular note is that the measures of peripheral underemployment - part time for economic reasons and those outside of the labor force who want a job now - have barely made any progress this year. Wage gains are among the best of this cycle, but that is an extremely low bar.

So, no cause for immediate concern, but no reason to think there will be much further improvement either.

From Bonddad

First, a few points.

  1. The economy is already near full employment of 5%. This means we should accept some deceleration in establishment job growth.
  2. Depending on which Fed governor you ask, the economy needs job growth of somewhere between 70,000-150,000 to absorb population growth. My best estimate is that that figure is actually around 110,000-120,000.
  3. This is a noisy data series, subject to numerous revisions. For example, this report adjusts the previous 2 reports up ~20,000 and down ~20,000. While we should keep track of the monthly report because the market does, we always need to remember there are issues with monthly data collection and estimates that are corrected throughout time.

This month, total jobs decreased 99,000. Goods producing jobs declined 35,000 due to drops in construction and manufacturing hiring. Service producing jobs declined 64,000 thanks to a fall in professional, leisure/hospitality and healthcare hiring.

While hourly earnings increased 3 cents/hour, weekly hours worked decreased .1, so average weekly earnings were $1.54 lower.

Finally, this isn't anywhere weak enough to push the Fed away from a rate hike.