Uneven Growth In The Labor Market Gives Fed Cause For Pause
By Mel Fabrikant Sunday, September 08, 2013, 03:52 PM EDT
Nonfarm payrolls rose 169k in August, slightly lower than the median consensus of 180k on Bloomberg. There were also big revisions to previous months: July was revised down from +162k to +104k, and June was revised down from +188k to +172k. With a net revision of -74k, the overall change in nonfarm payrolls (Aug. data +net revisions) was +95k. The NFP three month average slowed to 148k, noticeably weaker than Aprils average of 224k.
Private payrolls rose 152k in August following 127k the month prior. On a three month average basis, private payrolls are growing at a pace of 158k.
The unemployment rate ticked down one-tenth from 7.4% to 7.3% in August. Of course, the Labor force declined by 312k, the largest monthly decline in five months, drawing the participation rate down to 63.2%, the lowest since 1978. As we’ve written before, it’s very easy to draw down the unemployment rate, if no one is looking for a job. The U6 unemployment rate dropped three-tenths in August to 13.7%, but remains quite elevated.
In the details. Manufacturing payrolls rose 14k in August after five consecutive months of decline. The rise in manufacturing employment was well anticipated given the recent strength in the ISM. Construction payrolls were flat after falling 3k in July, and overall goods producing payrolls increased 18k in August, reversing July’s decline of -17k.
Service payrolls rose 134k, the fourth month of decline since April’s impressive rise of 205k. Trade and transport payrolls rose 64k, thanks to a gain of 44k in retail trade. Business services payrolls rose 23k, thanks to a 13k increase in temporary help. Education and health payrolls rose 43k in August, nearly double last month’s gain and leisure, and hospitality payrolls rose 27k. On the other hand, information payrolls and financial payrolls fell 18k and 5k respectively.
Government payrolls rose 17k in August after three consecutive months of decline. Federal employment was flat, meaning all of the growth was on the state and local levels.
Average hourly earnings rose 0.2% in August, pulling the annual rate up from 2.0% to 2.2%. And, the work week inched up one-tenth to 34.5.
Bottom line: The momentum in the labor market is uneven at best. While headline job creation remains positive it is a far cry from robust, sustainable levels of growth suggesting a near-term draw down of available labor. From the Fed’s standpoint, tapering plans were predicated on the economy, specifically the labor market, showing confirmed improvement. This morning’s employment report gave no such confirmation.
Still, on the surface the report was positive with job creation maintaining a near +150k average pace and a slight improvement in the unemployment rate. Coupled with the recent strength in the ISM numbers, and an upward revision to Q2 GDP, if the Fed was looking for an excuse to taper, they can find it. But is ‘good enough’ a valid reason to taper? Either the economy is strong enough to justify tapering or it isn’t. Why not wait until the data confirms positive momentum, rather than make a preemptive policy change in anticipation of further strength to come? Without a clear sense of improvement in labor market conditions we do not expect the Fed to justify a change in policy just yet.