US NFP: Recovery could lose momentum in the next months

Alvin Liew at UOB Group’s Global Economics & Markets Research assessed the lates figures from the US labour market report for the month of August.

Key Quotes

“The US nonfarm payrolls (NFP) increased by 1.37mn in August … lower from 1.73mn in July. The NFP again outshined the recent ADP report which saw August job gains of 428,000.”

“The big surprise was that the unemployment rate eased more than expected to 8.4% in August… Even as the labor participation rate climbed to 61.7% (from 61.4% in July), the increase in the household survey measure of employment was +3.8mn, markedly higher than the payroll survey (which is a separate survey).”

“The recurring issue was that the Bureau of Labour Statistics (BLS) again highlighted a persistent misclassification of a number of workers as ‘absent’ from work instead of “unemployed on temporary layoff”. This has been an issue for the BLS since March, although the severity of the problem has eased especially in recent months and BLS noted that it eased further in August.”

“Even if we accounted for the misclassification error, the improvement in the unemployment rate was still very impressive at 9.1% (vs the reported 8.4%), and it already went well below our year-end forecast of 9.5%. That said, even with a 8.4% unemployment rate, that is still significantly above the low of 3.5% recorded in February. The expiration of the US$600 weekly top-up to unemployment benefits appeared to have encouraged a number of Americans to seek employment (as reflected by the pickup in participation rate) and many successfully so. In addition, the uncertainty of further stimulus from the government may draw even more into the job market. That said, the August gains is showing a job recovery deceleration and is “artificially propped up” by a significant hiring of government temp workers for the census and may exit by September. The number of new jobs in September could drop to 500,000 while unemployment rate could inch back higher (to say 8.6%) on the back of rising participation rates.”

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