Positive Signs, Even with Lower than Expected Number

August job numbers show that the U.S. economy added 130,000 jobs, and held the unemployment rate at 3.7%. This marks the eighteenth straight month that unemployment is at or below 4%, and African American unemployment fell to an all-time low at 5.5%



While it’s slowing a little bit, the amount of jobs we’re adding on a monthly basis is more than enough to offset the additions to the labor force. Ben Ayers, Nationwide economist

Wage Growth and Employment Participation

Some economists forecasted 160,000 job gains, others as high as 180,000. While the 130,000 number is below expectations, there were several positive signs, including healthy wage growth, a rebound in the workweek, and a strong rise in labor force participation.



Wage growth continued with average hourly earnings increasing 3.2% from last August. Earnings have grown more slowly since the end of 2018, but wages have been growing faster for workers lower in the job hierarchy. Average hourly earnings rose 11 cents to $28.11. The workweek average rose to 34.4 hours from a two-year low of 34.3 hours in July.



The labor force participation rate rose to 63.2%, matching the highest level in the past five years. The employment-to-population ratio also rose to 60.9%, 0.6% up for the year. This gives discouraged workers, the disabled and others that are unemployed, the opportunity at a healthy labor market, giving job seekers more options and higher wages. African-American unemployment fell from 6% to 5.5%, the lowest on record since 1972.



Last month, the federal government hired 28,000 people, mostly in preparation for the 2020 Census. Private sector employees added 96,000 jobs. This pace of job creation has slowed with the economy adding about 158,000 jobs in each of the last 3 months, down from 223,000 for the same months last year.



Consumer Spending and the Fed

“While it’s slowing a little bit, the amount of jobs we’re adding on a monthly basis is more than enough to offset the additions to the labor force,” Ben Ayers, senior economist at Nationwide, said this week. “We’re adding more jobs than the number of people entering into the labor force, and that’s eating away at the number of unemployed and underemployed people. That’s supporting consumer spending.”



Consumer spending makes up 70% of the economy and remains strong, but leaves a split-screen economy with services firms doing well and hiring steadily, while factories and manufacturing are staying flat or slowed slightly and in some cases lost jobs. The U.S-China trade war reflects the contraction in American manufacturers and the effect of business confidence and investment toward manufacturers.



Although the economy generally remains on solid footing, because of the mixed results of the job report, the Fed believes it has more evidence to cut rates this month, likely by just a quarter percentage point, rather the half-point move as some investors are seeking.