August U.S. Employment

Weaker-Than-Expected Jobs Report Green Lights Fed Action Next Week

  • The August Payroll Employment Survey showed a weaker-than-expected gain of just 96,000 jobs.
  • The Unemployment Rate for August fell to 8.1 percent as the labor force shrank by 368,000.
  • The Average Workweek was unchanged at 34.4 hours, while overtime hours declined.
  • Average Hourly Earnings decreased by one penny to $23.52.

After increasing in July, job growth in August fell back closer to the weak Q2 average. The official Bureau of Labor Statistics job report for August showed a less-than-expected gain of 96,000 jobs. Just yesterday, the private ADP payroll report for August showed a gain of 201,000 private-sector jobs, and raised expectations for today’s official numbers. The disappointing official jobs numbers for August, which include negative revisions for June and July, add weight to the case for more monetary policy action by the Federal Reserve. Less bad in today’s BLS report was the decline in the unemployment rate by two-tenths to 8.1 percent.  As is sometimes the case, the unemployment rate dipped for the wrong reason in August as the labor force shrank by 368,000 workers. The large drop in the labor force in August pulled down the overall labor force participation rate to 63.5 percent, representing the lowest percentage of working age adults participating in the labor force since the late 1970s. The upcoming FOMC meeting is next week, September 12 and 13, and there are no U.S. data releases between now and then that could counter today’s bad news. It now appears more likely than not that the Federal Reserve will initiate additional monetary policy measures next Thursday. These could include another round of quantitative easing and additional forward guidance about the fed funds rate. Yesterday, the European Central Bank announced a new program of quantitative easing. Today, China announced major new fiscal stimulus in the form of infrastructure projects. The policy spigots are opening worldwide as the drag from cooler global demand is increasingly visible.

Payroll job gains were subdued across most industries and the total count was weighed down by ongoing losses in government employment and a recently uncharacteristic drop in manufacturing employment. Despite firmer residential building activity, overall construction employment increased by just 1,000 in August. Manufacturing employment declined by 15,000 jobs with half the losses concentrated in motor vehicle production. Wholesale trade added 7,900 jobs and retail trade added 6,100. Financial services added 7,000. Business and professional services employment increased by 28,000. Within that category, temporary help services employment declined by 4,900, a negative indicator for future hiring. Education and healthcare added 22,000 jobs in August. Leisure and hospitality gained a relatively strong 34,000 jobs. Government employment continued to decline in August by 7,000 jobs.

Market Reaction: U.S. equity markets opened with gains on the expectation of Fed action. Treasury bond yields are down. NYMEX crude is down to $95.39/barrel. The dollar is down versus the yen and the euro.

Click here for a PDF version of the Comerica Economic Alert: Employment 090712.

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