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August Payrolls: Slowing, but Only by Degrees

September 6, 2019

The August jobs report was a consolidator, not a game changer. The household and establishment surveys are converging on the message that job growth continues, but ever more slowly.

Headline Numbers

  • 130k rise in nonfarm payrolls, but only 105k after excluding the 25k hired for the 2020 Census. Despite 20kin downward revisions to the two prior months, the 3-month moving average rose to 156k, from a previously-reported 140k, as the weak May figures rolled out of the calculation.
  • 3.7% unemployment: nominally flat, but slightly lower before rounding  – which was reassuring after three straight minor increases.
  • Wage growth of 3.2%, leaving the 12-month figure for average hourly earnings stubbornly unchanged. While the 0.4% gain on the month was above expectations, it merely replaced an equally large gain in August 2018.
  • Average weekly hours reversed their July decline (back to 34.4 from 34.3).


Key Takeaways

  • Reaching the breakeven zone. The ex-Census payroll number of 105k falls within the estimated range of 60k-110k required to absorb new entrants into the labor force. Moving into that territory is what economists had been predicting we’d eventually reach, even before the emergence of headwinds from abroad. Moreover, the large benchmark revisions that the Bureau of Labor Statistics recently announced suggest that we have been converging toward that breakeven zone for longer than we realized. Slower new job openings growth in iCIMS Monthly Hiring Indicator suggest that job growth will continue to moderate in the next couple of months, but not necessarily below the breakeven point.
  • Recession indicators more benign than trade war casualties – for now. The clearest signal comes from temporary help services, which saw a big rebound (+15.4k, snapping a 3-month string of declines), but it was encouraging to see the cyclically-sensitive construction sector get a decent bounce too (14k versus -2k prior). And yet, the breadth of the softening among private services was concerning, and trade-sensitive sectors are suffering more than others. While manufacturing is still faring a bit better than in 2015-2016, eking out tiny gains (3k versus 4k prior), it has slowed notably since last year (2018 average of 22k). Retail trade continues to post even grimmer results (-11.1k versus -5k prior).
  • The household survey had strong headlines, but some weaker details. The most important numbers were positive – higher labor force participation and employment-to-population rates, in addition to the flat unemployment rate.  On the other hand, unemployment declined only for people who have attended college, so that’s not great for inequality. Neither was the increase in part-time work and the “U6” under-employment rate (reversing last month’s gain). Also, under “reasons for unemployment,” this was the 2nd straight monthly decline in job leavers and the 3rd straight decline in reentrants, so the increased participation looks more like correcting a measurement error (the household survey was notably weaker earlier this year) than a sign of optimism among workers. Finally, unemployment rose among part-time workers and workers in the following occupations: construction, maintenance/repair, transportation, and factory workers (especially the trade-sensitive area of durable-goods manufacturing).
  • Wage growth is stalling out, but consumer income is hanging on. Between low inflation and a cooling labor market, the prospects are dimming for any breakout. The good news is that that reduces the risk of the Fed making a policy error by hiking rates or holding off on rate cuts. Also, the rebound in the average workweek was a saving grace in this report and provides much-needed reassurance about growth consumer income – but again, only for now.
  • Policy outlook consolidating as well. All in all, this report was strong enough to undermine the argument for the Fed to cut rates by 50 basis points the week after next, but not strong enough to undermine expectations for further cuts beyond that. Downside risks to growth remain pronounced, and the questions remain “What next?” for headwinds from trade headlines and global growth and “How long and how well can the U.S. consumer weather this storm?”
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