The economy once again created jobs during the month of August, but at a pace short of expectations. US nonfarm payrolls rose by 169,000 in August, but revisions to prior data shaved 74,000 off payroll gains in recent months. The unemployment rate dipped to 7.3%.
In general, the August report can only be characterized as disappointing, with the net increase in payrolls including prior revisions coming in at just 95,000, well below any pace of job creation that could be deemed healthy and robust.
There are some other spots of weakness underneath the surface of the positive downward trend in the jobless rate. Too much of the decline continues to be a result of the reduction in the labor force participation rate. Absent that continued exodus of workers out of the labor force over the past year, the gain would have been cut in half and the jobless rate would still be around 7.7%.
Moreover, many of the newly created jobs have been part-time rather than full-time, which has contributed to a decline in the average workweek in recent months. Perhaps more importantly, the combination of modest gains in hourly wages and modest slippage in hours worked is weighing heavily on household income. Stagnant wage growth is likely to weigh on consumer spending at some point – a risk to an economy still very much dependent upon the consumer sector to fuel growth.
If there is a silver lining for investors, the jobs data give the Fed something to consider carefully before their impending decision on whether or not to begin tapering their bond purchase program. The Fed may still choose to move forward, but recent jobs data certainly doesn’t point to an economy that is firing on all cylinders. With the markets very focused on the Fed’s next move, any sign that tapering could be delayed could be a positive catalyst, at least in the near-term.
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