Don't Take the August Job Report at Face Value

The month is typically a tough time to seasonally adjust data, and these figures show it

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The U.S. economy added 173,000 jobs last month, falling short of economists' expectations once again. But don't conclude that August is a cursed month just yet. 

As businesses eased in and out of vacation mode and children flocked back to school, the calendar provided a few more reasons not to jump to conclusions based on the Labor Department's initial figures.

Response rate

The response rate for the government's survey of establishments, which determines the headline payrolls figure, was 69.9 percent last month—the lowest for any August since 2006:

The lure of the beach for some, and the lack of enthusiasm for their substitutes back at the office, typically translate into less participation in the Labor Department's monthly poll. This not only means the figure might be less reliable than usual, but also that it is more likely to understate the job gain, as has been the case since 2010, says Ryan Sweet, senior economist at Moody's Analytics.

Wage growth

Before we get excited about that 0.3 percent rise in average hourly earnings in August—which exceeded the median forecast and was the biggest monthly gain since January—we should bear in mind the caveat published by Morgan Stanley economists ahead of the job report's release this morning.

The government’s survey week ended on the 15th of the month, a day when employees receiving bimonthly checks get paid. That pattern is associated with higher earnings in the data, Ted Wieseman wrote in a note to clients. The last time this occurred was November. 

We may have to wait a bit longer for that ever-elusive momentum in worker pay to rear its head. Here's how stagnant the year-over-year pace has been since the start of the expansion in June 2009:

Manufacturers, teachers

Hiring at U.S. factories declined 17,000 in August, the worst performance since July 2013. This isn't cause for immediate alarm: Annual retooling, especially at automakers, can make manufacturing payrolls especially volatile in the summer months. It used to be easier to pinpoint July for these swoons; now, June, July, and August are all key to watch.

"As technology has made production more flexible, the shutdown schedules have been more variable, skewing the data in fairly random fashion," Guy Lebas, chief fixed-income strategist at Janney Montgomery Scott, said in a note to clients after the report's release.  

While the strong dollar and weaker demand from overseas customers have weighed on U.S. factories, the August payroll figure probably overstates the drop. 

At the same time, at least one sector that posted a hearty gain probably won't keep up that hiring pace this month. Local government education payrolls rose 22,900, to 7.85 million in August, making it one of the fastest-growing industries in the report. That's unlikely to be repeated in September, though, as teachers settle into the school years.

With Alex Tanzi.  

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