Macro September 06, 2019 / 01:12 pm UTC

In-Depth Research: Implications of U.S. August Employment - Trend Is Slower but Few Real Signs of Weakness

By David Sloan

Payrolls disappoint, with the trend experiencing a broad-based slowing. However, there are few real signs of weakness. The earnings, workweek and unemployment details are firm.

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With Federal Government hiring inflated by temporary census work, the figure to watch in August's non-farm payroll breakdown was private payrolls. The 96,000 increase was clearly on the weak side of expectations, especially given the 35,000 in negative revisions.

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Overall, payrolls at 130 thousand were weaker than expected. There was also a negative revision of 20,000. The trend is losing momentum, with the 3-month averages of 156 thousand for overall payrolls the weakest since October 2017 and 129 thousand for private payrolls the weakest since July 2012. However, these are not numbers that suggest a recession is close.

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The details do not support the ISM's contrast of weakness in manufacturing with strength elsewhere. The manufacturing job gain of 3,000 was marginal and the trend has slowed, but the data is still positive. Mining saw a third straight negative print at -5,000 while construction rose by a modest 14,000.

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Private services rose by 84,000, but retail at -11,000 marks a seventh straight decline, contrasting positive hints in the ADP data. Meanwhile, education and health at 32,000 corrected an above-trend 71,000 surge from July. On the more encouraging side, temporary help, which is often seen as a leading indicator, experienced its first rise in four months and its strongest gain in over two years.

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The fact the workweek recovered from a July figure that was the weakest since a hurricane-impacted September 2017 supports the notion that there are few glaring signs of weakness in the generally disappointing payroll numbers. Still, at 34.4 hours, the workweek remains below levels seen in most months of 2018.

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Average hourly earnings were stronger than expected with a 0.4% increase. And while the previous two months remain at 0.3% before rounding, revisions were positive, leaving a net gain of 0.5%.

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A late survey week may have supported this month's data, and the y/y picture of 3.2% remains fairly stable over the past year. However, the labor market remains tight enough to sustain moderate wage pressure.

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Unemployment was stable at 3.7%, as expected, but the breakdown of the household survey showed strong gains in both the labor force (571 thousand) and employment (590 thousand). The latter is well ahead of the month's payroll gain, but its 6-month average of 155 thousand is very consistent.

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I, David Sloan, the lead analyst certify that the views expressed herein are mine and are clear, fair and not misleading at the time of publication. They have not been influenced by any relationship, either a personal relationship of mine or a relationship of the firm, to any entity described or referred to herein nor to any client of Continuum Economics nor has any inducement been received in relation to those views. I further certify that in the preparation and publication of this report I have at all times followed all relevant Continuum Economics compliance protocols including those reasonably seeking to prevent the receipt or misuse of material non-public information.