US created a somewhat disappointing 151 000 jobs in August. Unfortunately wage growth slowed and the intention to hire surveys have also softened. Rate outlook is uncertain again

In August 2016, the US unemployment rate remained unchanged at 4.9%. This was slightly higher than market expectations for the rate to fall to 4.8%. The US unemployment rate has moved steadily lower from a peak of 10% in late 2009. The labour market participation rate also remained unchanged in August 2016 at 62.8%. Overall, the relatively low unemployment rate is still somewhat misleading given that the participation rate remains extremely low by historical standards (see chart attached).

Non-farm payrolls rose by a somewhat disappointing 151 000 jobs in August 2016. The market was expecting a gain of only around 180 000. The change in total nonfarm payroll employment data for the previous two months was revised down by a mere 1 000 jobs. Over the past 3 months, job gains have averaged 232 000 per month. The level of US employment is now 6.2 million above the peak prior to the global financial market crisis. During the financial market crisis the US lost a total of 8.7 million jobs. Consequently, the US has created more than 14 million jobs since the financial crisis ended.

The private sector added 126 000 jobs in August 2016, after gaining a revised 225 000 jobs in July 2016. The private sector has gained employment in 77 out of the past 78 months at an average of 194 000 jobs a month and is at a record high, comfortably surpassing the previous peak in January 2008.

During 2010 as a whole, the US economy created 1 066 000 jobs, or an average of 88 800 jobs per month. In 2011, the job gains averaged a far more respectable 174 000 a month, while in 2012 job gains averaged 179 000 a month. In 2013 employment rose by an average of 193 000 jobs a month, suggesting that although the labour market was still struggling to gain significant upward momentum, the rate of increase remained encouraging. In 2014 employment rose by a very impressive monthly average of 251 000 jobs, but then slumped somewhat to an average gain of 229 000 in 2015, hurt by the especially weak job reports in March and September 2015. Over the past 8 months, job gains have averaged 182 000 per month.

Key changes in employment per industry during August 2016:

  • Employment in food services and drinking places continued to trend up over the month (+34 000). Over the year, the industry has added 312 000 jobs.
  • Social assistance added 22 000 jobs over the month, with most of the growth in individual and family services (+17 000).
  • In August, employment in professional and technical services edged up (+20 000), about in line with its average monthly gain over the prior 12 months (+24 000).
  • Financial activities employment continued on an upward trend in August (+15 000), with a gain in securities, commodity contracts, and investments (+6 000). Over the year, financial activities has added 167 000 jobs.
  • Health care employment continued to trend up in August (+14 000), but at a slower pace than the average monthly gain over the prior 12 months (+39 000). In August, hospitals added 11 000 jobs, and employment in ambulatory health care services trended up (+13 000). A job loss in nursing and residential care facilities (-9 000) offset a gain in July. Employment in mining continued to trend down in August (-4 000). Since reaching a peak in September 2014, employment in mining has declined by 223 000, with losses concentrated in support activities for mining.
  • Employment in several other industries—including construction, manufacturing, wholesale trade, retail trade, transportation and warehousing, temporary help services, and government—changed little over the month.

The average workweek for all employees on private nonfarm payrolls decrease by 0.1 hour to 34.3 hours in August. Average hourly earnings for all employees on private nonfarm payrolls increased by only 3 cents to $25.73. Over the year, average hourly earnings have risen by only 2.4%, well down from a revised 2.7%y/y in July 2016. Average hourly earnings of private-sector production and nonsupervisory employees increased by 4 cents to $21.64 in August. While wage growth is still low by historically standards, it is at least still trending modestly higher.

The latest employment report is clearly a little discouraging, especially following the better than expected June and July employment data. Disappointment in the report was broad-based, including a slowdown in wage growth, no change in the participation/unemployment rate, and a decline in the workweek. There was also a worrying decline in the “intention to hire” survey. Overall, the US labour market continues to expand at a reasonably pace, but is still not reflecting outright vibrancy. From the Federal Reserve Bank’s perspective the latest employment data will, once again, make the next FOMC decision uncertain, but the Bank is clearly edging closer to the next rate hike of 25bps.

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