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September 7, 2018 Blog 2 min read
The jobless rate held steady at 3.9% in August, but the monthly jobs report contained other news of note.
August Employment SituationOn the surface, labor market conditions remained strong in August, as the economy created 201,000 new jobs during the month, modestly exceeding expectations. That only tells part of the story though, as revisions to the prior two months actually trimmed prior estimates by 50,000. The result was a net increase of about 150,000, a net increase that was weaker than economists had anticipated.

Despite that mixed result, job creation has been relatively strong this year, albeit choppy, averaging more than 200,000 per month – better than the 189,000 average monthly pace for the comparable period in 2017.

Supported by solid job creation, the jobless rate held steady at 3.9% in August. The downward momentum in the jobless rate has stalled in the past six months, with the unemployment rate holding near 3.9% over much of that period.

As illustrated by yesterday’s numbers on jobless claims, layoffs remain exceptionally low, which is obviously a good thing for workers or those looking for a job. Jobs are plentiful today….that’s not the problem. Increasingly, the challenge is one for employers trying to find workers, particularly those with the skill set to fit their needs. If there is a risk that job creation could falter, it would appear more likely to result from employers simply not being able to fill open positions than from a slowdown in demand for workers.

It’s a “seller’s market” for labor, and that is apparent in rising hourly wages. Average hourly earnings rose by 0.4% in August, and increased by over 2.9% over the past year. For many years, the persistent slack in the labor market resulted in subdued wage gains. With that slack now arguably gone, the competition for workers has intensified, and wage growth is poised to accelerate.

Whether that results in increasing spending power for households is less clear, as inflation is also heating up. Higher prices will offset some of the benefit of rising income. Still, stronger wages should support consumer confidence and spending growth in the near term.

Conversely, the headwind of rising labor costs may also be a headwind to corporate profitability, unless the recent uptick in productivity can be sustained.

For now, the U.S. economy broadly remains on a solid growth path, the labor market included. Workers have a lot to be pleased with, including fewer layoffs, lower unemployment, and solid job growth – with measures of each reaching multi-decade lows recently. As long as businesses remain upbeat in their outlook, hiring and the labor market should remain solid, and the economy should follow suit.
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