US August Non-Farm Payrolls: Job creation slides, wages rise

Payrolls expanded modestly in August as a still tight job market boosted wages and helped to keep most of the global economic slowdown from American shores.

The US economy created 130,000 new positions last month of which 25,000 were temporary Census workers, reported the Labor Department on Friday.  This was fewer than the 158,000 forecast and July’s adjusted 159,000. Revisions to June and July reduced their total by 20,000.

Reuters

Unemployment remained stable near a 50 year low at 3.7% for the third consecutive month and has varied just 0.4% this year from 4.0% in January to 3.6% in April and May.  In the 12 months to August unemployment has fallen just 0.1%. In comparison in the prior year it declined 0.6%.

Reuters

Annual wage gains improved to 3.2% and the labor force participation rate rose to 63.2 matching its best level since 2013.  The number of American working climbed 590,000 to a record 157.9 million.

Reuters

Rising wages, which have been growing 3% or more for 12 months, and low inflation have augmented consumer purchasing power. Retails sales and household consumption in general have provided the economy with sufficient activity to maintain a 2.6% expansion in GDP in the first half despite a serious pullback in business investment.

Job creation has been slipping for most of the year in tandem with GDP dropping from 3.1% in the first quarter to 2.0% in the second and an estimated at 1.5% so far in the third.  In January the 3-month moving averge for NFP was 245,000, by April that had fallen to 142,000 reviving only to 156,000 in August.  In August 2018 the 3-month average was 241,000.

The steady and continuing decrease in job creation this year will likely reinforce the Fed’s economic rationale for a 25 basis point cut when it meeting on September 17-18.  Markets are close to certain that the central bank will continue with its second reduction to a 2.0% upper target after July's first rate cut since 2008.

Manufacturing employment rose by 3,000 in August, missing its 8,000 prediction. More importantly the prior two months which had seemed to indicate a reprise in hiring after factory payrolls gains had declined for most of the year were revised sharply lower. The July total fell from 16,000 to 4,000 and June from 12,000 to 10,000. That reduced the total job additions for eight months to 44,000, just 5,500 per month. That is a far cry from the 22,000 monthly average for last year.

Reuters

Treasury yields were essentially unchanged on Friday as the generic 2-year added one point to 1.54% and the 10-year was flat at 1.56%.  Over the past several weeks this part of the yield curve has inverted a number of times with the longer rate falling below the shorter in a classic recession indicator.

Equities rose slightly with the Dow gaining 69.31 points to 26,797.46 and the S&P 500 adding 2.71 points to 2,978.71.  The dollar was also little changed in spite of its initial moderate  losses after the release, closing at 1.1030 against the euro, 1.2285 versus the sterling and 106.90 against the yen.