Download august jobs report disappoints, but does not indicate a

September 5, 2014
AUGUST JOBS REPORT DISAPPOINTS, BUT DOES NOT
INDICATE A SLOWING IN LABOR MARKET RECOVERY
SUMMARY

The U.S. economy added 142,000 jobs in August, well below expectations. This was the first time in seven months
job growth has fallen below 200,000. There were net downward revisions to job growth in the previous two months.

The unemployment rate fell to 6.1 percent in August, primarily because of a contraction in the labor force.

Although job growth was weak, labor income growth in August was better than in July.

Some one-time factors slowed job growth in August. In addition, job growth for the month is likely to be revised higher.

The fundamentals of the U.S. economy remain strong, with above-trend growth expected in the second half of this
year.

Job growth will continue to run at an average monthly pace of 200,000 through the rest of this year. The
unemployment rate will continue its gradual decline.

The disappointing jobs report does not change the outlook for monetary policy.
August payroll jobs growth was disappointing, with only 142,000 jobs added over the month. This was the first time since
January that job gains were below 200,000. The increase in jobs was far below the consensus expectation of 220,000 and
PNC's forecast for 230,000. August private-sector employment was up by only 134,000, well below the ADP figure of
204,000, while government jobs were up by 8,000, with state and local government jobs up by 5,000 and Federal
government jobs up by 3,000. Job growth was 212,000 in July (revised up from 209,000), and 267,000 in June (revised
down from 298,000), for a total downward revision of 28,000.
Although the August number was a disappointment, job growth over the past three months has still averaged 207,000, a
pickup from earlier in the year when the frigid weather weighed on hiring (see Chart 1). In August total payroll jobs rose to
139.12 million; this further surpassed the previous payroll job peak of 138.37 million in January 2008, which was followed
by a massive loss of 8.7 million jobs during the Great Recession before employment bottomed out in early 2010. Even with
the new August high in payroll jobs there is still a great deal of slack in the labor market as the U.S. working-age
population has steadily increased.
The unemployment rate fell to 6.1 percent in August, from 6.2 percent in July. However, the August unemployment rate
was 6.1497 percent to four decimal places, and so just barely rounded down to 6.1 percent. And the change in the
unemployment rate was for the “wrong” reason. The number of people who reported having jobs in the household survey
(different from the survey of employers) was up by just 16,000, while the labor force contracted by 64,000. As a result, the
number of unemployed fell by 80,000 over the month. The labor force participation rate fell to 62.8 percent in August, from
62.9 percent in July, returning to its cyclical low (see Chart 2). The labor force participation rate has been hovering near 63
percent for a year; previously it had not been that low since the late 1970s. The U6 unemployment rate (unemployed,
“under employed” and too discouraged to even look for a job) fell to 12.0 percent in August, down from 12.2 percent in
July; this is the lowest U6 rate since late 2008. One positive from the household survey is that the number of people
working part-time for economic reasons continued to decline, falling by 234,000 in August.
September 5, 2014
AUGUST JOBS REPORT DISAPPOINTS, BUT DOES NOT
INDICATE A SLOWING IN LABOR MARKET RECOVERY
August payroll job gains were mixed across industries.
Construction jobs rose by 20,000, the eighth straight
monthly increase for a total of 192,000. Manufacturing jobs
were flat, ending a streak of twelve straight monthly
increases. The average workweek in manufacturing fell
slightly to 40.9 hours, from 41.1 hours in July. Private
service-producing industries added 112,000 jobs in August.
This included gains of 47,000 in professional/business
services (including 13,000 temp jobs), 15,000 in
leisure/hospitality services, 7,000 in financial activities, and
37,000 in eds and meds. Trade/transportation employment
rose by just 1,000 in August; this was held down by a strike
at a supermarket chain in New England, as retail trade jobs
fell by 8,000 over the month. And information services jobs
fell by 3,000 in August.
workweek, aggregate hours rose 0.1 percent; combined
with a higher average wage, workers’ earned income rose
by a solid 0.4 percent in June. Prices were likely flat in
August given the recent drop in gasoline prices (the August
CPI will be reported on September 17), so incomes grew
ahead of inflation over the month, supporting moderate
growth in consumer spending. Vehicle sales jumped in
August to a very strong 17.5 million annual rate, well above
the 16.2 million pace in the first half of the year, another
indication that incomes are rising and consumers are
spending more. Solid job and wage gains so far in 2014 are
supporting our forecast for real GDP growth in the second
half of 2014 of about 3 percent at an annual rate, above the
long-term trend.
One positive in the jobs report is that average hourly wages
rose by 0.2 percent for the month, after they barely
increased in July. The average workweek held steady at
34.5 hours. With more workers and an unchanged average
In summary, the 142,000 rise in August payroll jobs, while
disappointing, does not indicate weakness in the economy.
The weaker job growth in August is inconsistent with a long
list of other measures—initial unemployment insurance
claims, the ISM surveys, auto sales, construction spending,
600
500
400
300
Chart 1: Both Employer, Household Surveys
Show Monthly Job Growth of Around 200,000
Monthly change in employment,
3-month moving average, ths
Establishment
survey
200
100
0
-100
Household
survey
-200
-300
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Chart source: Bureau of Labor Statistics
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September 5, 2014
AUGUST JOBS REPORT DISAPPOINTS, BUT DOES NOT
INDICATE A SLOWING IN LABOR MARKET RECOVERY
and many others—that show above-trend growth in the
middle of 2014. The weak August numbers are likely to be
revised higher—in recent years there have been large
upward revisions to August employment levels—and job
growth is set to bounce back in September. It could be that
the seasonal adjustment factors for August understated job
growth for the month, perhaps due to the early Labor Day
weekend, perhaps due to shorter-than-usual shutdowns for
auto plant retooling.
The FOMC will correctly regard this report as an anomaly,
and further reduce their purchases of long-term assets to
$15 billion per month when they meet in two weeks, and
then wrap them up completely in late October. Given that
average hourly earnings continue to increase at a modest 2
percent year-over-year pace, we still do not expect the first
increase in the Fed funds rate until the second half of 2015.
11.0
Underlying job growth is running at a little more than
200,000 per month. The numbers have been choppy in
2014 because the bad winter early in the year and then a
bounce back in job growth as the economy thawed, but the
pace of job creation has been stronger than in 2013. Given
above-trend growth job gains will maintain their current
pace of around 200,000 per month through the rest of this
year and into next. The unemployment rate will continue its
gradual decline, ending this year a little below 6 percent,
and ending next year at around 5.5 percent.
Stock prices were up slightly by mid-afternoon despite the
weaker-than-expected jobs report, with commodity prices
lower. The dollar is down slightly today, after it rose
yesterday on the unexpected news of the ECB rate cut. The
10-year Treasury note rate is lower by 2 basis points to
around 2.42 percent, still up from its recent lows of around
2.35 percent in late August/early September.
Chart 2: Unemployment Rate Is Falling, But No
Improvement in Labor Force Participation Rate
66.0
65.5
10.0
65.0
Unemployment rate, % (L)
9.0
64.5
64.0
8.0
63.5
Labor force participation
rate, % (R)
7.0
63.0
6.0
62.5
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Chart source: Bureau of Labor Statistics
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or a recommendation to buy or sell any security or adopt any investment strategy. Opinions and forecasts expressed herein are subject to
change without notice. Relevant information was obtained from sources deemed reliable. Such information is not guaranteed as to its accuracy.
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