August Jobs Report: A Surprise Wage Jump
The U.S. adds 201,000 jobs; wages accelerate
The U.S. added a better than expected 201,000 jobs in August. This strong expansion marks the 95th consecutive month of job creation and continues the longest streak on record. While job growth was robust, the real story was the unexpected spike in annual wage growth from 2.7 percent to 2.9 percent. Stagnant wage growth has been a thorn in the side of workers and the Federal Reserve, but the growth in August should counter some of the pessimism. The unemployment rate, which was expected to tick-down, remained level at 3.9 percent. The labor force participation rate declined from 62.9 percent to 62.7 percent, likely due to high schoolers returning for fall classes.
Top Takeaways from the Report
Wage growth accelerates
For much of the recent economic expansion, stagnant wage growth has frustrated workers and puzzled officials at the Federal Reserve. With the economy at full-employment and businesses vying for qualified workers, wages should have been rising, but weren’t. That may be changing. With the jump in wage growth from 2.7 percent to 2.9 percent, paychecks rose at a rate not seen since 2009. And with the decline in the labor force participation rate, and signs that hiring is constrained by lack of supply, wage growth may have the fuel it needs to continue rising.
However, despite increased wage growth, many workers may still not see an improvement to their bottom line. As many economists have pointed out, inflationary pressures have been rising as well. And with multiple indicators rising to or above the Fed’s preferred level of 2 percent inflation, wage gains may be chipped away by rising prices.
Hiring is strong, but signs of a slowdown emerge
The U.S. labor market added 201,000 jobs in August. While this was better than expected, employment in June was revised down from 248,000 to 208,000, and employment in July was revised down from 157,000 to 147,000. Taken together, these revisions subtract 50,000 jobs from initial estimates. As the labor market continues to tighten, this trend may continue as employers find it hard to hire and retain qualified labor.
The Fed will likely raise rates at the next meeting
With an economy growing at 4.2 percent and continued strength in the labor market, the Fed has the go-ahead to continue with its planned rate increases. While the Fed has previously expressed concern over the lack of wage growth, this report should ease their anxieties.
Growth by Select Industry
- Professional and business services, and education and health services both added 53,000 jobs in August. The sectors have added 519,000 and 449,000 jobs, respectively, over the past year.
- Construction employment rose by 23,000, mainly driven by a rise in specialty trade contractors. The sector has added 297,000 jobs over the past year.
- The manufacturing sector slowed somewhat, losing 3,000 jobs in August. This decline broke a streak of 12-consecutive months of jobs gains in the sector.
- The Bottom Line – Despite lingering concerns over trade negotiations, the U.S. labor market continues to remain on solid footing. Hiring remains robust and the unemployment rate continues to sit below levels suggestive of full employment. The Federal Reserve’s planned rate path of one or perhaps two more quarter-point increases this year remains intact.
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