The pace of hiring in the US decelerated, but remained robust in August, according to the last jobs report the Fed will see before this month’s closely-watched policy meeting.
The economy added 315,000 jobs last month, government data showed (figure below). Conveniently, the headline print matched consensus.
Also convenient for a Fed bent on taming an unruly labor market were downward revisions to figures for June and July (concentrated in June). Together, the data suggested the market is cooling, but remains sturdy enough to support the economy as policymakers proceed with rate hikes aimed at curbing the hottest inflation in a generation.
June’s sizable downward revision will likely be cited by those with one eye on the household survey for evidence of lost momentum. Household employment fell by 315,000 in June. In August, it rose by 442,000, so any dire narratives that rely on the disparity between the two series aren’t especially relevant this month.
At the risk of adopting a skeptical cadence, the numbers felt almost too good to be true for the Fed. It wasn’t just that the headline print was solid and that revisions removed 107,000 from the prior two months’ combined total. Average hourly earnings were cooler than anticipated, rising 0.3% MoM, less than the 0.4% consensus expected and down materially from July’s 0.5% rate. On a 12-month basis, wage growth was a still-hot 5.2%, but that too was a touch below estimates.
Enhancing the “Goldilocks” vibe was an uptick in the unemployment rate to 3.7%. Remember: The Fed expects (and wants) the jobless rate to rise. Just not too much. And 3.7% is nowhere near “too much.” In fact, it’s still too low, according to almost every economist you care to consult, or at least in the context of rampant inflation.
Better still: The participation rate jumped to 62.4%, tied with March for the highest of the pandemic era. That effectively cancels out any negative spin you might be inclined to put on the higher unemployment rate.
Job gains were distributed across professional services, healthcare, retail and manufacturing. Notably, leisure and hospitality hiring was lackluster. If there was something to dislike about August’s report that was probably it. At just 31,000, the pace of leisure and hospitality hiring was the slowest since the sector shed nearly a half million jobs during 2020’s winter COVID wave. The US isn’t going to recover all of the leisure and hospitality jobs lost to COVID. Not this cycle, anyway.
When considered in conjunction with the cool read on ADP’s revamped monthly report, Friday’s data helped take some of the edge off a disconcerting JOLTS release which suggested the labor market is still distorted beyond recognition.
Although I doubt the numbers will move the needle too much in terms of market pricing for the September FOMC, the report arguably gave the Fed plausible deniability for a downshift to 50bps hike increments, with emphasis on “arguably.” August’s CPI report will have the last word. If CPI is hotter than expected, there was nothing in the jobs report to prevent the Committee from opting for a third consecutive 75bps move if that’s their preference.
For now, though, markets can breathe a sigh of relief. The jobs report checked most boxes for a “Goldilocks” interpretation.
[Insert three bears joke]
Typically headline unemployment can go up, even when hires do since more folks then look for work. This time is different, since the labor force may grow as things normalize out from a pandemic. Perhaps more folks feel better about the risks with covid and some long covid sufferers are getting better.