The August chapter in the ongoing, generally upbeat labor market story had enough twists and turns to satisfy those that believe that the jobs economy remains on track and those concerned that some underlying problems still exist.
Job creation continued in August, with 156,000 being added to payrolls – a solid print, but one that fell short of economist expectations for 185,000 or more. At the same time, the unemployment rate edged higher to 4.4 percent.
While the number of jobs created was a moderate disappointment, history suggests that it may get a boost from future revisions. Over much of the past two decades, the preliminary August tally has been revised higher relatively consistently – and often to a significant degree.
Similar to the (to this point) largely unexplained consistent weakness in reported first quarter GDP, initial reports for August nonfarm payrolls appear to suffer from a statistical shortcoming that results in a first look that understates reality.
The bottom line is that while the reported pace of job creation may appear disappointing on the surface, it would be premature (if not completely unnecessary) to sound any alarm bells. Even at 156,000, it’s far from concerning, but we’ll likely have a much better read on what really happened in August in the coming months.
If there is a source of greater concern, it’s in the underlying wage numbers, which continue to stagnate. In recent months, there have been some signs that tighter labor markets were pushing wage gains higher. In August, average hourly earnings increased by a paltry 0.1 percent; for the past year, the increase remains lackluster at just 2.5 percent. Stronger wage growth remains elusive, despite high job openings and a dwindling supply of unemployed, skilled labor.
Stronger wage growth would be expected to further support consumer spending growth – far and away the largest driver of growth for the U.S. economy.
While on the surface the report is a modest disappointment, it’s unlikely to deter the Fed as they meet later this month to discuss and adjust monetary policy. All things considered, the economy appears to remain well on track, and policymakers are likely to continue to take the next steps in raising short-term rates and perhaps begin the process of slowly reducing the central bank’s balance sheet.
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