U.S. Payrolls Up Less Than Forecast As Annual Trend Steadies

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by: James Picerno

Companies added 165,000 workers last month, the US Labor Department reports. The gain was modestly below Econoday.com's consensus forecast. But the year-over-year trend held steady in August, suggesting that the two-year slowdown that began in the first half of 2015 may be stabilizing at a lesser-but-still-healthy growth rate.

From the perspective of this week's ADP Employment Report, a private estimate of monthly changes in the labor market, today's government data looks disappointing. By ADP's reckoning, company payrolls increased by a seasonally adjusted 237,000 last month - the strongest monthly gain for this series since March.

The Labor Department's numbers reflect a much softer advance for August, but both data sets agree on at least one key point: the annual pace of growth for private employment appears to be stabilizing after two years of deceleration.

According to today's numbers from Washington, US payrolls grew 1.7% in August vs. the year-earlier level, unchanged from July's pace. (Actually, the August increase was a tick faster at 1.71%, fractionally above July's 1.69% advance.) That's roughly the average annual rate of growth posted so far this year via the monthly updates to date - a sign that the labor market's expansion may hold at or near this rate for the foreseeable future.

Yesterday's weekly update on initial jobless claims also offers support for thinking positively. New filings for unemployment benefits ticked higher last week, but remain close to a multi-decade low. Note, too, that claims continue to fall on a year-over-year basis, a bullish signal for the labor market.

Challenger, Gray & Christmas' monthly estimate of job cuts corroborates the upbeat claims data. "Although job cuts have risen this month, they continue to be significantly lower compared to the same time last year," the consultancy's chief executive officer, John Challenger, said in yesterday's August update.

Looking for a robust acceleration in job growth in the near future is probably asking for too much at this late date in the business cycle, but there's a firmer case for anticipating that a moderate, sustainable increase in payrolls will prevail for the rest of the year and perhaps into early 2018.

Today's employment change reflected "a softer report," notes Gus Faucher, chief economist at PNC Financial Services Group, "but it doesn't change the overall picture, which is the economy and the labor market are in good shape."

Recession risk certainly doesn't look threatening at the moment. A recent profile of a broad set of economic and financial indicators tells us that the probability that a new downturn has started is virtually nil, based on numbers published to date. Today's release doesn't offer a reason to think otherwise.

Keep in mind, too, that the peculiarities of August may be masking firmer employment growth in the government's data. "August tends to be a little bit softer, so we can certainly see an upwards revision over the next couple of months," Faucher adds.

Mark Zandi, chief economist of Moody's Analytics, made a similar observation on Wednesday, explaining that "the initial [Bureau of Labor Statistics] employment estimate is often very weak in August due to measurement problems, and is subsequently revised higher. The ADP number is not impacted by those problems."

To the extent that you're inclined to use recent ADP data for analyzing payrolls - numbers that have been considerably stronger vs. the Labor Department's figures in recent months - it's tempting to consider the possibility that a bullish revision for today's report may be waiting in the wings.

Some analysts go further, reasoning that a careful reading of the data still indicates a solid profile, despite the August slowdown. "This report is all noise and no signal," says Joe Bruselas, chief economist at RSM. "I'm going to advise our clients to ignore the top-line number and focus on the long-term trend... We're still adding roughly twice as many jobs as we need to keep the unemployment rate stable. This labor market is tight as a drum."