Today’s employment report offers a Rorschach test for Federal Reserve officials. The report tells less about the labor market than reactions to it will tell about observers’ thinking. It is sufficiently ambiguous that monetary policy hawks will see in it what they need to go forward with a September rate hike, while doves will see it as evidence to hold off.
The Bureau of Labor Statistics (BLS) reported that payroll employment expanded by 173 thousand in August. Revisions to the previous two months added 44 thousand jobs. Doves will see the dip below 200 thousand, hawks will see the upward revisions and the string of months over 200 thousand. The unemployment rate fell to 5.1% from 5.3%. Hawks will see this as its longer term natural level (NAIRU). Doves will see the labor force defections and the depressed participation rate.
It would be difficult to characterize the 173 thousand payroll gain as a fundamental weakening in the labor market, or even inconsistent with accumulated progress. But neither the 5.1% unemployment rate, nor the uptick in average hourly earnings, provides a slam dunk for those in favor of raising rates. The August labor report was basically right down the middle and lets you see what you want to see.