Fed Gets Ideal US Jobs Report

The US economy added slightly more jobs than anticipated in August, wage growth cooled and the unemployment rate rose. The report was amenable to a “Goldilocks” interpretation — with a few caveats.

The 187,000 headline NFP print for August came in ahead of estimates, but revisions subtracted 110,000 from the prior two months. June’s revised headline (105,000) now sticks out as the slowest month of the post-pandemic era if you don’t count December of 2020, when jobs were lost to the winter COVID wave.

The range of estimates for August’s headline was 120,000 to 230,000. Consensus was 170,000.

Taken together, the figures underscored the notion that the pace of job creation in the US is slower, but still healthy. That’s perfectly consistent with the Fed’s goals, and also with the August vintage of ADP’s hiring report, which conveyed the same general message. Private payrolls rose 179,000 in the government report, matching ADP’s headline almost exactly.

Leisure and hospitality hiring was 40,000 last month. Total employment in the sector is now less than 2% from pre-pandemic levels. That’s good news, but the fact that there’s still a shortfall after more than three years speaks to the scarring effect, and also to the idea that America needs foreign-born workers. Recall that the majority of labor market normalization is attributable to foreign-born labor+ and leisure and hospitality is a big part of that story.

Manufacturing added 16,000 jobs last month, triple the highest estimate. That may suggest America’s factory malaise is abating, although I suppose ISM will have the final say.

The unemployment rate rose to 3.8%, a sizable increase from 3.5% in July. The participation rate moved up too.

It’s worth noting that when the unemployment rate moves 0.3% or more higher, it tends to stay higher. In other words: We’ve likely seen the lows in the jobless rate.

Dire spin aside, that’s probably just fine with the Fed. Yes, the unemployment rate is the highest since February of 2022, but 3.8% is very (very) low from a historical perspective.

The BLS was keen to note that not much has changed on the jobless side of the equation since this time last year. Although the number of unemployed is 400,000 higher, that’s entirely attributable to August’s increase. Other than that, the ranks of the unemployed are “little different” over 12 months, despite 525bps of Fed hikes.

Average hourly earnings rose 0.2% MoM. That was cooler than expected and half July’s monthly pace.

Unrounded, the MoM AHE print was the slowest in 18 months. On a YoY basis, wages grew 4.2%, a full percentage point above headline inflation.

That’s all consistent with the Fed’s goals too. Jerome Powell is desperate for evidence that wage growth is cooling, and that the risk of a wage-price spiral is off the table. He got that evidence this week, first with the JOLTS report (which showed fewer openings and fewer quits) and now with AHE.

To be sure, you could argue that the totality of this week’s data points to rising hard landing risks. I can assure you that some commentators were making that case on Friday. But the reality of the situation is that if you asked Fed officials three weeks ago to sketch the contours of an ideal August NFP report, this is probably what that sketch would look like.

Bottom line: The US labor market is in better balance than it was earlier this year, job openings continue to shoulder some of the burden of normalization, wage growth is cooling, people aren’t as inclined to quit and the economy is still adding ~150,000 jobs per month on average. Spin it as you will, but that’s a pretty favorable conjuncture.


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