Evidence on the US labor market was mixed coming into August payrolls on Friday.
Jobless claims painted a somewhat convoluted picture and not only was ADP a big miss earlier this week, but the revision to July’s headline print was relatively small, meaning the yawning disparity with the government’s nonfarm payrolls report remained intact for July.
In August, the US economy added 1.37 million jobs, the BLS said Friday, in what analysts variously billed as perhaps the last of the “easy” labor market reports. The headline print was bang in-line with consensus, which was looking for 1.35 million. The range of estimates was comically wide, in keeping with pandemic precedent.
Revisions subtracted a net 39,000 from June and July when the market digested large upside surprises. Those figures are now 4.781 million and 1.734 million, respectively. 238,000 of the positions added in August reflected Census hiring.
Upside beats in May, June, and July helped recast the economic narrative in the US – or at least until surging coronavirus caseloads in several large states forced a pause in the re-opening push. August’s headline numbers will help reinforce the contention that the Sun Belt’s battle with the virus and associated containment protocols did not materially derail the recovery. The economy has now recouped 48% of the jobs lost in March and April.
The unemployment rate (which defied expectations for a surge to Great Depression-like levels over the summer) dropped to 8.4% in August, from 10.2% in July.
That will likely be one key talking point. 8.4% is much better than the market was expecting. Economists were looking for 9.8%. Counting misclassified workers, the unemployment rate would have been around 0.7 percentage points higher, but nevertheless it’s a big beat.
Manufacturing payrolls rose 29,000 for the month. Consensus was looking for 60,000 there. Private payrolls jumped 1.027 million. The market wanted 1.32 million.
“In August, 24.3% of employed persons teleworked because of the coronavirus pandemic, down from 26.4% in July”, the government said. “24.2 million persons reported that they had been unable to work because their employer closed or lost business due to the pandemic–that is, they did not work at all or worked fewer hours at some point in the last four weeks”, the report reads. That total is down from 31.3 million in July.
Average hourly earnings rose 0.4% MoM, and 4.7% YoY. Those are both better than expectations, but the figures remain difficult to parse due to pandemic distortions.
Obviously, there are still plenty of question marks swirling around the labor market. “The primary question at hand is whether the >1 million pace in monthly job gains is sustainable even as initial claims appear to have stabilized closer to 1 million than many were anticipating”, BMO’s Ian Lyngen wrote Friday morning, adding that “the point at which monthly NFP additions levels out will be key to forecasting the pace and durability of the recovery”.
At the margins, Friday’s report may reduce the sense of urgency inside the Beltway. On Thursday, Steve Mnuchin and Nancy Pelosi reportedly agreed to ensure a stopgap funding bill remains “clean” to avoid unnecessary complications which might “accidentally” dead end in a government shutdown. Siloing the two negotiations would reduce the odds of a “grand fiscal failure” while perhaps raising the odds that the two sides dig in further on the stimulus stalemate.
“Depending on the underlying survey, [the] data is in-line or better than expected”, Mohamed El-Erian remarked. “Markets are asking is good economic news bad policy news?”
A bevy of Fed officials continued to emphasize in public remarks this week that additional fiscal stimulus is not only desirable, but wholly necessary. Lawmakers remain deadlocked on the future of the next virus relief package. Some viewed Thursday’s selloff on Wall Street as a positive development to the extent it might compel Republicans to move closer to Democrats’ price tag, which remains north of $2 trillion. That may be wishful thinking.