U.S. employers added 130,000 jobs and unemployment showed signs of stabilizing at historically low levels in August. Jeff Sparshott and Greg Ip here to walk you through today’s report.
The Labor Market Has Peaked. It Could Stay That Way.
Since peaking at 10% a decade ago, unemployment has trended steadily downward, interrupted by four stretches of stability. The first three lasted five to 13 months, after which the decline resumed. The current, fourth stretch has lasted 12 months: Unemployment in August, at 3.7% matched its level of September 2018. It could resume declining, but don’t bet on it: Accelerating wage growth suggests the pool of idle labor has shrunk. Overall economic growth probably averaged 2% over the last 12 months. Given stable unemployment, that’s probably the U.S. economy’s long-run potential. Something will upset this equilibrium, but it’s hard to say what. For now, fiscal policy, trade war and interest rates seem to be mostly canceling each other out. —Greg Ip
KEY THEMES
Fed On Track for a Cut
The August jobs report is likely to keep the Federal Reserve on track to lower its benchmark interest rate by a quarter percentage point in two weeks, Nick Timiraos writes.
- For the Fed, the U.S. employment report likely doesn’t provide a strong signal that the economy is deteriorating markedly. Neither should it deliver the “all clear” sign that the economy is immune to a global manufacturing slowdown and declining business investment.
- Concerns about a deteriorating outlook for the global expansion and the U.S.-China trade war animated the Fed’s decision to cut rates in July and will do so again this month.
Pay Puzzle
One potential wrinkle for the Fed: Wage gains are accelerating. That’s a welcome development for workers but a possible concern for officials with an eye on inflation pressures. Average hourly earnings rose at an annualized rate of 4.24% in the three months through August, the fastest growth since mid-2007. Inflation has also perked up in recent months. The timing—just as concerns about an economic downturn are building—couldn’t be worse for the Fed, Pantheon Macroeconomics’ Ian Shepherdson says. “We think employees are finally shaking off the shock of the crash and are now seeking to exploit their scarcity in pursuit of faster wage gains,” Mr. Shepherdson says. “We expect the Fed to ease this month, but the markets’ hopes of endless rate cuts will be hard to meet if inflation is rising and future inflation pressure is building.” —Paul Kiernan
Let’s Count
The federal government hired 28,000 workers in August, the biggest jump since 2010. The reason: Temporary hiring for the 2020 Census. Even with the bump, two underlying trends are the same. First, private-sector hiring is slowing but not stalling.
Second, federal government employees still make up a tiny share of the overall workforce—close to the smallest record.
The Hours
Average weekly hours increased slightly in August, alleviating some concerns that employers were cutting back amid softening demand. But the short-term trend still suggests the economy is weaker than a year ago.
The sum of all hours worked by all employees across the economy is rising but at a decelerating pace. Aggregate hours are a key gauge of the overall labor market and hint at the future consumer behavior. “If investors observe a reduction in hours worked over a sustained period, alarm bells should go off with respect to the direction of hiring and household spending,” RSM US’s Joseph Brusuelas says.
Some Good News
Labor-force participation for those in their prime working years jumped in August, matching its highest level since April 2010. And the employment-to-population ratio for workers 25 to 54 was the highest since 2008, a sign that strong demand from employers is pulling more Americans off the sidelines.
Participation for all workers 16 and over also jumped in August, reversing a worrisome decline that had been developing since earlier in the year. The share of the overall population with a job was the highest since the end of 2008. “They’re coming out of the woodwork and they’re coming back to work,” National Economic Council Director Larry Kudlow told CNBC Friday.
And the unemployment rate for African-American women hit the lowest level on record.
What Economists Are Saying
“This report should not set off alarm bells but is not encouraging. It’s clearly on the negative side.” —Luke Tilley, Wilmington Trust
“It doesn’t look anything like impending recession territory. The labor market doesn’t seem to be dancing to the same tune as the bond market.” —Brian Coulton, Fitch Ratings
“There has been a clear slowdown in trend employment growth.” —Paul Ashworth, Capital Economics
“Today’s jobs report is still a good sign for the labor market, indicating that workers continue to come in off the sidelines.” —Daniel Zhao, Glassdoor
“Job seekers can, and are, still benefiting from this jobs market, but let’s not count on this lasting forever.” —Nick Bunker, Indeed Hiring Lab
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