The jobs report came short of estimates, but the report’s internals are strong enough to keep the prospect of a Fed hike this month very real. The market’s initial reaction to the report reflects the view that this report takes us towards lift-off in the coming meeting.
The August jobs report from the U.S. government’s Bureau of Labor Statistics (BLS) came short of estimates, with ‘headline’ job gains of 173K for the month vs. estimates of 220K and the prior month’s tally of 245K (which was revised higher: 245K vs. 231K originally). The average monthly job gain over the last 12 months has averaged 245K. The unemployment rate ticked down to 5.1% from 5.2%, down a full percentage point over the past year and the lowest since April 2008. One could reasonably extrapolate the unemployment rate falling below the 5% level by the end of the year if the current trend continues.
In addition to the positive revisions to the prior two months, the report’s internals about hourly earnings and the workweek are also favorable. Average hourly earnings increased a decent +0.3% from the prior month and +2.2% from the year-earlier period to $25.09. The average workweek ticked up as well to 34.6 from 34.5 in the prior and the year-earlier months. The labor force participation rate remained unchanged for the third straight month at 62.5%, implying that the decline in the unemployment rate wasn’t a result of folks stopping looking for work.
[Hear: Jon Lieber on US Small Business Outlook and the Crisis of Entrepreneurship]
The private sector added 140K jobs in August vs. 224K in July and 209K in the year-earlier period. All the jobs came from the services-producing industries, while goods-producing industries lost positions, reconfirming what we saw from the respective ISM surveys this week.
The major industries where jobs gains occurred this month were healthcare, social assistance (things like caring for children or the elderly) and finance, while mining and manufacturing lost jobs. Employment in other major industries like construction, retail, wholesale trade, transportation, warehousing and government was little changed during the month. No major surprises in these trends as we have known for a while that industries that are more geared towards the domestic market (largely services providing industries) have been doing really well, while those exposed to weak markets abroad (like manufacturing and mining) have been under pressure.
The headline ‘miss’ notwithstanding, this report meets the Fed’s threshold of an improving labor market, leaving it with no reason to step back from what it is expected to do at the coming meeting. The unemployment rate is down and hourly earnings are up. We have to be mindful of the ‘August effect’ with respect to the ‘headline’ weakness as well – the August jobs report has historically been weak on first read, then gets revised higher in the following weeks. - See more at: https://www.zacks.com/stock/news/189029/jobs-report-shouldnt-derail-fed-...
