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September 6, 2019 Blog 2 min read
The unemployment rate was unchanged at 3.7% in August, but slower job creation reflects a moderating economy.

9-6-19 Employment Situation Chart

Job creation slowed in August as payroll growth in the service sector stalled. Even so, the unemployment rate held steady at 3.7%.

Nonfarm payrolls increased by 130,000 for the month, although revisions to the June and July tallies trimmed 20,000 from previous estimates. The net result was an increase of 110,000, which fell well short of consensus expectations for a gain of 150,000.

The report tells a mixed story about the state of the U.S. labor economy. Consistent with evidence of a broader slowdown in the pace of growth, job creation is also clearly ebbing. Still, the 3-month average remains above 150,000 new jobs being added every month, which is a solid pace consistent with moderate economic growth.

Additionally, wage growth of 3.2% may still be lower than one would expect with the jobless rate so low, but inflation over that same period was below 2%. Adjusted for inflation, real wage growth still provides a positive support for consumer spending.

Without question, the growing uncertainty around trade policy and the slowing global economy are taking a toll. Consumer sentiment, while still relatively high, has dipped. Business optimism is waning, not only because the impact of tariffs are being felt, but also due to the growing sense that the trade war could drag out for some time. The reining in of expectations impacts business investment and it impacts hiring plans – both in a negative way.

The key prop under the economy today is clearly the consumer sector. Supported by solid labor market conditions and generally solid household finances, consumers still appear to have the ability and willingness to open their wallets and spend. That will be critical to the economy’s ability to power through trade and business sector headwinds in the coming months.

The Fed is also seemingly poised to cut rates again in less than two weeks, which should provide some additional fuel to the economy. Some would argue that the source of the economy’s recent woes isn’t that interest rates are too high. Although there is a compelling argument to be made, the bond market is also sending a clear message that the Fed needs to take action. The good news is that the central bank appears to be listening and will do just that.

The bottom line is this: evidence that the economy is slowing is apparent in many measures, including the jobs report. Even so, job creation reflects an economy that is growing at a decent pace. The marked slowdown in August isn’t cause for alarm, but the path over the next few months will be watched closely, and with good reason.

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Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.