Payrolls in U.S. Cool in August as Jobless Rate Holds Steady

Is the Fed Behind the Curve?
  • Wage gains moderate, while labor-participation rate unchanged
  • Fed will weigh data as it debates interest-rate increase

U.S. payrolls grew at a slower but solid pace in August while measures of labor slack were little changed, signs the job market is cooling as the economy approaches full employment.

Payrolls climbed by 151,000 last month following a 275,000 gain in July that was larger than previously estimated, a Labor Department report showed Friday in Washington. The median forecast in a Bloomberg survey called for 180,000. The unemployment rate and labor participation rate held steady, while wage gains moderated and hours worked were the lowest since 2014.

The August figure is consistent with a simmering-down of payrolls growth so far this year as the world’s largest economy slogs through a period of weak investment and some companies have difficulty finding workers. Analysts were divided on whether the report gives Federal Reserve officials a green light to raise the benchmark interest rate in September for the first time in 2016, while futures traders slightly pared bets on a move.

“Overall, it still looks like the job market is doing well,” said Michael Feroli, chief U.S. economist at JPMorgan Securities LLC in New York, who projected a 150,000 gain in payrolls. Even so, “this probably takes a little bit away from the case for a September move,” with the shorter workweek “a bit of a concern,” said Feroli, who projects the Fed will raise rates in December.

For a quick roundup of analyst reaction to the report, click here.

Goldman Sachs Group Inc. economists said they see a 55 percent probability of a rate hike this month, and Janus Capital’s Bill Gross also said the Fed is likely to move in September.

The 89 estimates in the Bloomberg survey ranged from gains of 92,000 to 255,000 after a previously reported 255,000 July increase. Revisions subtracted a net 1,000 jobs from overall payrolls in the previous two months, as June’s increase was cut to 271,000 from 292,000.

August Curse

The payrolls data were contending with a pattern of August disappointment, with the survey median overshooting the first print for the month in each of the last five years, by an average 47,000. Low response rates in a popular vacation month and difficulty adjusting for seasonal effects at the start of the school year could be to blame.

The unemployment rate, which is derived from a separate Labor Department survey of households, was 4.9 percent for a third month, as the labor force increased, with a little more than half of those entering finding work. The participation rate, which indicates the share of working-age people who are employed or looking for work, was also unchanged at 62.8 percent.

The government’s underemployment rate held at 9.7 percent, as the number of people working part time for economic reasons rose slightly, according to Friday’s report. Some 6.05 million American employees were in part-time jobs but wanted full-time work, up from 5.94 million in the prior month.

Average hourly earnings rose 0.1 percent from a month earlier to $25.73, following a 0.3 percent increase in the prior month. The year-over-year increase was 2.4 percent, compared with 2.7 percent in the 12 months through July.

The average work week for all workers decreased by 6 minutes to 34.3 hours in July, the lowest since 2014 and the first drop in six months.

Factories cut payrolls by 14,000, the most in three months. Employment at construction companies fell for the fourth time in the last five months.

Employment slowed at private service providers, with payrolls in professional and business services posting the smallest gain since a decrease in January. Retail jobs rose by 15,100.

Report’s Optics

“While it’s still a decent pace of job growth, I think the optics of it is not particularly compelling, to the extent that it reflects a sharp deceleration in the pace of labor-market momentum,” said Millan Mulraine, deputy head of U.S. research and strategy for TD Securities USA LLC in New York, who projected a 153,000 gain.

Wages are “not encouraging,” Mulraine said. “But I would chalk this one up to calendar effects, and I would expect it to bounce back more meaningfully in the coming months.”

Analysts see the economy regaining momentum after a weak first half of 2016. Gross domestic product climbed at a 1.1 percent annualized rate in the three months ended in June. Economists see growth picking up to 2.7 percent in the third quarter, according to Bloomberg survey estimates.

A sustained slowdown in hiring would raise questions about America’s consumer-driven expansion as the Fed debates whether to increase rates as soon as this month, or wait for more signs of faster inflation. Chair Janet Yellen said last week that the case for rate hikes “has strengthened in recent months.”

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