After six months of robust growth, the US labor market stumbled in August. But is this a temporary blip, or a threat to the economy’s long-term health?
The US economy added 142,000 jobs last month, nudging the unemployment rate down to 6.1 percent, according to data released Friday by the Bureau of Labor Statistics (BLS). That was far worse than the 210,000 on average that economists were expecting, and the job market’s weakest growth rate in eight months. The underwhelming report broke the economy’s streak of six straight months of 200,000 jobs added or more.
“Although the summer saw robust economic growth, job creation has slowed alongside as worries about the global economic outlook have intensified,” Chris Williamson, US economist for Markit, wrote via e-mailed analysis. “Furthermore, in a sign that plenty of slack persists in the labour market, wage growth remained subdued.”
The unemployment rate did tick down 0.1 percent, but mainly because more people stopped looking for work, opting out of the labor force. Additionally, the Labor Department revised jobs added in June and July downward, to the tune of about 28,000.
The job market’s stumble immediately raised questions about the Federal Reserve’s timetable for raising interest rates and further scaling back its support of the economy.
Many analysts, including Joshua Shapiro at MFR, Inc., view Friday’s data as more the exception than the rule. “We do not believe that today’s sub-par payroll results mark the start of a disappointing trend,” he writes via e-mail. “Rather, we would chalk up the result to the vagaries of high-frequency economic data that are subject to revision in the next two months and then later on a benchmark basis.”
Therefore, he writes, the data shouldn’t definitively sway Fed policy one way or the other. Still, “the latest payroll data…will play a role in the debate at the upcoming September FOMC meeting. A single month of data never plays a decisive role in a policy decision…[but] it will provide some fodder for the more dovish contingent on the FOMC, and may keep some of the more hawkish members at bay until another month of jobs data are reported.”
"We should also not get too fixated on one data point, especially for a series such as non-farm payrolls which suffers from huge revisions,” Mr. Williamson adds. “Despite the easing in employment growth in August, the economy should continue to create new jobs in healthy numbers in coming months. The underlying trend in hiring remains reasonably robust given the rising geopolitical concerns, alongside a rapid pace of economic growth. The jobless rate has also come down sharply from 7.2% last October.”
While job growth has been robust, the bigger question is whether sluggish wage gains are holding the economy back. Hourly pay rose just six cents in August, growing at a 2.1 percent annual rate barely ahead of the 2 percent inflation increase. Consumer spending, too, fell in July for the first time in six months. “The missing element of the recovery remains wages growth, the absence of which means policy makers will be in no hurry to cool the pace of economic growth via higher interest rates,” Williamson writes.
“As the labor market continues to pick up momentum, we would expect wage gains to accelerate modestly,” Shapiro says. “We are just not there yet.”