The U.S. heads into the Labor Day weekend with something of a letdown, as Friday’s jobs report reveals hiring cooled off in August. The bigger picture, however, remains unchanged.
For the record, non-farm payrolls swelled by 151,000 last month, or roughly 20,000 jobs short of what economists forecast.
The unemployment rate, which is derived by a different survey, stood pat at 4.9% for the third straight month.
Although it’s never much fun when job growth falls short of expectations, not all misses are created equal. Look under the hood of the survey and you’ll see pockets of strength and reasons to remain fairly upbeat about the pace of future hiring.
Besides, as much as economists’ may have overestimated last month’s labor market strength, it doesn’t look much like anyone else did. Just witness the market reaction to the news. The Dow Jones Industrial Average jumped by triple digits not long after the open.
And yet the jobs report indisputably missed estimates. In other words, the jobs report was a bit of a mixed bag with implications for both the bears and bulls alike.
Key Takeaways From the Jobs Report
- Hiring slowed significantly last month, coming up well short of economists forecasts — but so what? August is always the slowest month for job creation (and the hardest one to measure accurately) because of the late-summer vacation rush. Remember, these are just surveys and they can get skewed when employees, hiring managers and government economists are in an out of the office all month.
- As with all economic data, the trend is far more important than any single data point, and the trend remains investors’ friend. June and July delivered red-hot jobs growth and the latest revisions to those figures — an overlooked but critically important bit of news — resulted in a wash. All that really matters is that payroll gains are averaging 232,000 a month for the past three months. That’s a blistering pace of hiring.
- Employment in food services and drinking places continued to lead the charge in terms of job creation with 34,000 added in August. Over the year, the industry has added 312,000 jobs. This is mixed news because these jobs tend to come with lower pay, few benefits and less stability. It’s great that jobs opened up for hundreds of thousands of workers, but job quality matters too.
- Speaking of quality, average hourly earnings rose 3 cents to $25.73. Over the year, average hourly earnings are up 2.4%. This is another example of mixed news. Stagnant wage growth has long been a drag on consumption and economic growth. The fact that wages continue to rise is unambiguously good. The fact that they are still growing very slowly — and well below the Federal Reserve’s target — suggests the pace of recovery remains sluggish.
- The jobs report is being interpreted as a reason for the Fed not to raise interest rates later this month. Fair enough, especially after yesterday’s news that manufacturing activity contracted in August. At the same time the jobs report landed, however, we learned that factory orders for July posted their biggest gain since October. Let’s call the last two days’ worth of data a breakeven result. A Fed hike remains a possibility in September, but the smart money says to expect one closer to the holidays.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
