Sobering Signs in the Jobs Report
The U.S. economy added 151,000 jobs in August, according to the report released this morning by the Bureau of Labor Statistics. This represents a slowdown in the pace of job creation compared to the previous two months, when payrolls grew by over 250,000 jobs in each month. So far in 2016, job growth averaged 182,000 per month, slower than in either of the previous two years. (See chart 1).
Of the 151,000 jobs added in August, the vast majority were in private service providing industries, which added 150,000 jobs. Goods producing industries cut 24,000 jobs from their payrolls, mostly in durable-goods manufacturing, which lost 16,000 jobs. Construction lost 6,000 jobs, a fifth month of weak jobs growth, after a fairly strong period in late 2015-early 2016. The continued contraction of jobs in these sectors, which are most sensitive to changes in consumer demand, is a worrisome sign since it may indicate slowing consumer demand overall. As we have said before, the economy has been expanding, albeit slowly, on the strength of the American consumer.
The government added 25,000 jobs, almost all of them in local government, equally split between education-related jobs and non-education.
Within service industries, the largest payroll gains happened in food services and drinking places (+34,000 jobs), social assistance (+21,700 jobs), professional and technical services (+20,100 jobs), retail trade (+15,100 jobs), finance and insurance (+14,400 jobs) and health care (+14,400 jobs).
Jobs in employment services and temporary help agencies shrunk in August. This could be a good sign if it was the result of people getting into permanent positions instead of temporary jobs. However, with the subdued jobs growth overall, an alternative interpretation—that the slowdown in employment services reflects the slow labor demand overall—is at least equally likely.
The unemployment rate remained unchanged in August at 4.9 percent, a level most economists would consider to be close to full employment. The labor force participation rate, at 62.8 percent, and the employment-to-population ratio, at 59.7 percent, also remained unchanged.
A good sign is that the average duration of unemployment has shrunk: In August it was 27.6 weeks, down from 28.1 weeks in July. While the change seems small, the good thing is that it occurred because the number of the long-term unemployed has decreased considerably. The number of those unemployed 15 to 26 weeks fell by 94,000, and those unemployed for 27 weeks or longer fell by 14,000.
At the same time, the growth of employee earnings slowed down (see chart 2). In August, the average hourly earnings of all employees in the private sector were 2.4 percent higher than they were 12 months ago. The average weekly earnings, however, were only 1.5 percent above their value a year ago due a decrease in average weekly hours.
Overall, despite the low unemployment rate, the latest labor market data do not appear to be overly positive. With job losses in the most demand-sensitive sectors and subdued jobs growth overall, the improvement in the labor market appears to be proceeding only slowly. Such an environment does not provide strong reasons for the Federal Reserve to raise interest rates when the Fed officials meet later this month.
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