- The slowdown in job gains in August to 151K from 275K in July is more consistent with an economy that has been growing below trend
- Unemployment was flat at 4.9%, remaining steady for almost a year
- The pace of wage growth slowed, rising only 0.1% after increasing 0.3% in July; we don’t see much room for a rebound in wage growth given weak business activity
- This jobs report takes away the urgency of a rate hike in September. We think that the US economy will improve in the next quarters, supporting a rate hike in December
US nonfarm payrolls cools in August, while unemployment remains steady
Nonfarm employment increased by 151K in August, following an upwardly revised 275K in July. However, total revisions over the past two months added up to 1K fewer jobs. This report shows some moderation in job growth compared to the past two months. However, job gains in this report are more consistent with an economy still growing below trend. The details of the establishment survey suggest that hiring in the goods-producing sector remains weak. The manufacturing sector cut 14K jobs, while construction lost 6K jobs. The manufacturing sector seems to be having difficulty filling positions, since job openings have been rising. Meanwhile, service-producing activities continue to hire at a solid pace, notably education and health (+39K) and trade and transport (+34K) made a stronger contribution. The household survey showed that unemployment was flat in August at 4.9%. Unemployment has been hovering around 5% for almost a year. Other measures of labour utilization, including part-time workers for economic reasons remained unchanged (9.7%).
Wage growth slows modestly
Average hourly earnings rose by 0.1% mom, after increasing by 0.3% in August. The annual increase of average hourly earnings was 2.4%, down from 2.7% the previous month. This is still below the 3-3.5% trend wage growth that the Fed would like to see. We think weak business activity could be one of the reasons for keeping wage growth somewhat subdued.
Jobs report takes away the urgency of a September hike
We think that today’s job numbers take away the urgency to hike rates in September. A rate hike in September would have required a stronger job report, including firmer wage growth. Wage growth remains modest and the preferred measure of inflation for the Fed, the core-PCE, remains subdued. We expect the US economy to improve in the next quarters, supporting a rate hike in December. Markets reacted with a bit of disappointment as US 10Y yields edged down, while the US dollar, which had been rallying the previous days declined against a major basket of currencies.