Tepid Job Creation Amidst Trade Uncertainty
The U.S. labor market remains solid even as job creation cools
Despite the boost from adding 25,000 temporary government Census Bureau workers, overall job creation in August was less than expected at 130,000. While this was below analysts’ estimates of 150,000, the overall state of the labor market appears solid. The unemployment rate remained level at 3.7 percent and the labor force participation rate, the ratio of individuals working or searching for work, rose from 63 percent to 63.2 percent. The increase in labor force participation is an indication that the job market is still healthy enough to pull more people off the sidelines. Additionally, annual wage growth was stable in August rising 3.2 percent.
Top Takeaways from the Report
Hiring is Slowing but the Labor Market Appears Solid
Employment growth in the U.S. is slowing. In addition to the lackluster 130,000 jobs added in August, July’s employment gains were revised down from 164,000 to 159,000, and June’s from 193,000 to 178,000 - which means there were 20,000 fewer jobs created than originally reported. This brings the average monthly job gains in 2019 down to 158,000, which is well below the 234,000 jobs created per month in the same period in 2018. However, despite the slowdown in hiring, employers have still added jobs for 107 consecutive months and the number of jobs created is still solid given the late stage of the current economic cycle.
While the slowdown in hiring is likely being intensified by the trade war with China, there is still reason to believe that the overall labor market will remain solid in the coming months. Not only did the overall labor force participation rate rise in August, but the rate of prime age workers (ages 25 – 54) rebounded from 81.4 percent to 82.4 percent. Additionally, the unemployment rate for African Americans fell to the lowest level on record at 5.5 percent, and the unemployment rate for Hispanics tied for its all-time low at 4.2 percent. Another positive sign is that the average workweek rose from 34.3 hours to 34.4 hours. This is an important indicator for economists, because employers typically begin to trim overtime and hours for part time workers before larger job cuts occur.
The Fed is Primed for Additional Rate Cuts
After cutting short term interest rates for the first time since the financial crisis in July, Fed officials are likely to cut rates once again at their mid-September meeting. Over the last month, predictions in the financial markets have oscillated between a Fed cut of .25 percent and .50 percent. While a cut of .50 percent is not out of the question, August’s mixed jobs report points to a .25 percent cut as the most likely.
Fed officials have repeatedly said that the trade war with China is creating large amounts of uncertainty in the economy. How much the Fed decides to cut rates will depend on whether officials see the impacts as transient or longer lasting.
Growth by Select Industry
- The government sector added 34,000 jobs in August as the Census Bureau hired 25,000 temporary workers in preparation for the 2020 Census.
- Despite adding 3,000 jobs in August, the manufacturing sector continues to struggle. Employment creation in the sector has averaged only 6,000 per month in the last three months, which is down from an average of 20,000 per month during the same period in 2018.
- Professional and business services added the largest number of employees in August at 37,000. The sector has added 449,000 jobs over the past year.
The Bottom Line
Job creation in the U.S. is slowing and the decline is likely being intensified by the trade war with China. Despite this, the overall state of the labor market remains solid, with low unemployment, stable wage growth, and rising labor force participation. The uncertainty around trade, combined with today’s mixed employment report will likely lead the Federal Reserve to cut short term interest rates by .25 percent at the mid-September meeting.
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