Non-farm payrolls increased by 156k in August, well below the 180k expected by the street. Revisions to the previous two months’ of payrolls subtracted 41k positions, with June and July hiring reduced to 210k and 189k, respectively. As a result, the three-month moving average of job growth slowed from 195k to 185k.
Private payrolls rose by 165k, just 8k below consensus expectations. Private-services hiring was once again led by business services (+40k), health care & education (+25k), other services (+16k) and finance (+10k). Goods hiring was robust, with manufacturing (+36k), construction (+28k) and mining & logging (+6k) all adding jobs. Government hiring (-9k) was weak, as all branches of government shed jobs.
The unemployment rate ticked up by 0.1 percentage points to 4.4% as the labor force increased by 77k while the ranks of the unemployed swelled by double that (151k). The participation rate was largely unchanged, at 62.9. Despite the tick-up in the headline unemployment rate, broader measures of labor underutilization were unchanged.
Average hourly earnings rose by 0.1% during the month, at half the pace that was expected, with downward revision to the past month. As a result, the year-over-year wage metric held steady at 2.5% in August.
Average weekly hours declined by 0.1 to 34.4.
Key Implications
It is not easy to find cheery news in the August employment report. The headline print disappointed expectations, contrary to the strong ADP print mid-week. Alongside the large downward revisions to prior months’, trend payroll growth slowed from 195k prior to the report to just 185k given the new data. Lastly, the diffusion index – which measures the breadth of the gains across industries – pulled back a bit to 63.8.
Still, while not cheery, the report was not all doom and gloom. The pace of job creation still remained well above what is considered slack absorbing pace of around 100k per month. Moreover, most of the sectors that added jobs were the well-paying ones, while the ones readings were typically in industries that had strong hiring in the prior months. Importantly, the goods producing sectors, which often are a better indicator of underlying momentum roared on the month.
This report was not at all impacted by Hurricane Harvey, but we expect there may be an impact in next months’ reports should the disruptions extend to mid-month. For more information about the impact of Hurricane Harvey click here.
Perhaps the most disappointing element of the report of the wage data, with the headline missing expectations and sizeable downward revisions to prior months. This is the element that the Fed is looking for as far as potential inflationary pressures, with the softness suggesting more patience as far as tightening of monetary policy. Ultimately, we don’t expect the data to dissuade the Fed from beginning sheet normalization in the coming weeks, but any hikes are unlikely to take place until inflation and wages firm up. This is indeed what we’re expecting, with the Fed still likely to hike at its December meeting, once the data flow becomes more constructive.
