- Non-farm payrolls rose by 130k in August, underwhelming expectations for a 160k gain. Adding to the negativity, hiring in June and July were revised down 20k.
- The headline was boosted by the federal government hiring temporary workers to prepare for the 2020 Census (+25k). Private sector hiring was weaker, at only 96k new jobs.
- Goods-producing employment rose 12k, after a small decline in July, driven by gains in construction (+14k). Manufacturing jobs gains have been modestly positive in recent months, but the pace of growth this year has slowed dramatically since 2018. So far in 2019 manufacturing hiring has been one quarter last year’s pace.
- Private services hiring also slowed (+86k), held back by losses in the retail sector (-11k) and educational services (-5.4k). Hiring in professional and technical services (+37k) held up well, helped by a bounce back in temporary help services (+15k), as did health care and social assistance (+37k).
- On the plus side, the unemployment rate remained steady at 3.7%, and the participation rate moved up to 63.2%, re-attaining its cycle high. In perhaps the most positive aspect of the report, the core aged (25-54 years) employment-to-population rate rose to a new cycle high of 80%. That is the highest level seen since January 2008, and is evidence that a solid labor market is drawing more workers off the sidelines.
- Wage growth was also decent. Average hourly earnings rose 0.4% on the month, and are up 3.2% versus a year ago. Hours worked also rose 0.3% in August, after a period of weakness.
Key Implications
- Payroll gains continue to slow. While August’s result disappointed consensus expectations, it is consistent with our forecast for slowing monthly job gains as workers get tougher to find. We expect monthly hiring to slow towards 100k per month through the end of the year. That said, the low unemployment rate, and decent wage gains still paint a picture of overall health for the labor market.
- That is not to say there isn’t evidence of weakening cyclical trends. Manufacturing being a prime example. As discussed in our recent report, weaker foreign demand growth and elevated trade uncertainty have dampened activity in the sector. Construction hiring has also slowed on a trend basis to roughly half its pace in the middle of 2018.
- Earlier in the summer Chair Powell said that to call a labor market hot, you need to see some heat. While the August job report was solid on the whole, there were few things that really raised the mercury. There is little here to prevent the FOMC from cutting rates a quarter point later this month, with the cyclical weakness in some sectors building the case for easier monetary policy.
