Highlights:
- Payroll employment rose a smaller-than-expected 156k in August with 41k worth of downward revisions to June and July gains combined.
- The unemployment rate ticked up to 4.4% from the cycle-low 4.3% in July but is still down half a percent from a year ago.
- The annual increase in average hourly earnings was 2.5% for a fifth straight month.
Our Take:
The 156k increase in jobs in August was smaller-than-expected — and more-so when including 41k worth of downward revisions to the two prior monthly estimates. Looking through monthly volatility, year-over-year employment growth hit its lowest level since mid-2013 in August. Employment growth has long been expected to slow, though, as slack in labour markets is absorbed. By most estimates, even the recent pace would be sufficient to further tighten labour markets over time. The unemployment rate did tick higher in August but to a 4.4% rate that is still below the Fed’s estimate of its long-run ‘full-employment’ level. The rate is still down half a point from a year ago and twice that when including sources of ‘hidden unemployment’ like discouraged workers.
More concerning to fed officials than slower job growth is likely to be the stalling out of wage growth year-to-date in 2017. Despite ostensibly tighter labour markets, wage growth has been stuck at 2.5% over the last 5 months, similar to the 2.6% average increase last year. The lack of further acceleration in wages coupled with a lack of inflation pressures continues to provide the fed with flexibility around the pace of monetary policy tightening despite what historically would look like relatively tight labour markets.
