Non-farm employment rose by 142k in August, slightly below the consensus forecast calling for a gain of 165k. Job gains in the two prior months were revised lower by 86k.
- Over the past three months, payroll gains have averaged 116k, in line with recent months but considerably below the 202k averaged over the prior twelve-month period.
Private payrolls rose 118k, with most of the gains concentrated in leisure & hospitality (+46k), health care & social assistance (+44.1k) and construction (+34k). Government hiring chipped in with 24k jobs in August.
In the household survey, a stronger gain in civilian employment (+168k) outstripped a further increase in the labor force (+120k) – pushing the unemployment rate down 0.1 percentage points to 4.2%. The labor force participation rate held steady at 62.7%.
Average hourly earnings (AHE) were up 0.4% month-on-month (m/m) – an acceleration from July’s 0.2% gain. On a twelve-month basis, AHE ticked up to 3.8% (from 3.6% in July).
Key Implications
This morning’s employment report provided further evidence that the labor market is cooling. Not only did job growth come in below the consensus forecast, but revisions to prior months also showed a weaker pace of job creation. That said, it wasn’t all bad news. The unemployment rate partly reversed some of July’s uptick – thanks to a sharp reversal in temporary layoffs following a spike in July – while aggregate weekly hours rose by a healthy 0.3% m/m, or the largest monthly gain since March.
Fed officials have been clear in recent communication: rate cuts are imminent. However, market participants are still wrestling with whether the FOMC will cut by 25 or 50 basis points at its next meeting in less than two-weeks. Clearly the labor market has cooled over the past year, but we feel there isn’t enough evidence to suggest that the recent softening is the start of a more serious deterioration in underlying fundamentals. Absent a change to this view, we expect three quarter-point rate cuts from the Fed by year-end.
