The August jobs report was a mixed bag.
Here’s the bad news: The economy added a lower than expected 130,000 new jobs, and of those, 25,000 were due to the government’s temporary hiring of 2020 Census workers. 2019 job growth has averaged 158,000 per month, a downshift from 223,000 in 2018. There is now clear evidence of a slowdown in private sector employment, which may have started in the middle of last year. The annual BLS benchmark revisions will lop off some 500,000 positions that were originally reported from March 2018 until March 2019.
Here’s the good news: The unemployment rate remained at a near 50 year low of 3.7 percent and 571,000 people entered the labor force and were mostly able to land jobs. Additionally, average weekly hours worked edged higher, wages increased by 3.2 percent from a year ago, and the three-month annualized rate jumped to an 11-year high of 4.2 percent. There has been continued acceleration among the lowest paid workers, which usually translates to an increase in consumer spending.
When it comes to sectors of the economy, there was also a mixed bag. On the positive side, health care, professional and technical services, finance and construction all posted decent gains. But, retail keeps shrinking and manufacturing employment has largely remained unchanged from a year ago. (The later is suffering from a combination of a slowdown in global growth and the escalation of the US-China trade war.)
While manufacturing makes up just 11 percent of the US economy and roughly 8 percent of jobs, economist Joel Naroff points out one more negative in the report: “Only 53.5 percent of the industries posted gains. That was the second lowest percentage in 9.5 years, a further sign that firms are becoming more cautious in their hiring.”
THE FED: The August report bolsters the case for another quarter-point interest rate cut when the Federal Reserve meets on September 17-18. Officials will cite the slowdown in job growth and softening manufacturing data, but will also likely reiterate that the economy remains on solid footing overall. Two days before the jobs report, New York Fed President John Williams put it plainly: “ The economy is in a good place, but not without risk and uncertainty.”
MARKETS: Stocks have recouped all of their August losses (the three major US stock indexes are now within 3 percent of their all-time closing highs reached in July), as investors have hung their hats on a thawing of the US-China trade tensions. The two sides will resume low-level talks over the next couple of weeks, ahead of a planned higher-level meeting in Washington early next month. Unfortunately, the timing does not look good, because “the proposed talks will not prevent the planned increase in the US tariff rate on $250 billion worth Chinese goods to 30 percent on October 1,” says Paul Ashworth at Capital Economics. If the trade talks break down again, be prepared for another round of volatility.