The Employment Situation for August – A Disappointing Surprise

Job growth slowed and the unemployment rate ticked down; job growth is the more important signal.

The Bureau of Labor Statistics (BLS) released the Employment Situation report for August. The establishment survey showed payroll employment expanded by 142 thousand, well below expectations. The June figure was revised down from 298 thousand to 267 thousand, and July was revised up from 209 thousand to 212 thousand, for a net loss of 28 thousand in the two months.

From the household survey, the unemployment rate slipped to 6.1% from 6.2% in July (just barely, down by 0.049 percentage points). This was driven by a meager increase of 16 thousand in employed persons and a decline of 64 thousand in the labor force.

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The slowdown in payroll employment may represent the end of the second quarter bounce back from the first quarter weakness. Both GDP growth and employment surged in the second quarter. Early indicators are that GDP growth slowed in the third quarter. A slowdown in employment growth would be consistent with that pattern. The August figures plus the revisions bring average monthly payroll employment gains to 207 thousand, consistent with the slower but still robust forecasts for GDP growth in the third quarter (in the neighborhood of 3.0%).

Today’s report was a disappointing surprise but probably isn’t the end of the story. The silver lining on this dark cloud is that the weakness in this report will reduce the pressure for an early move by the Fed to raise interest rates.

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