Financial Review

August Jobs Report

…201,000 new jobs in August. 3.9% unemployment rate. Wages up to 2.9% annualized, but just keeping pace with inflation. Tariff threats.
Financial Review by Sinclair Noe for 09-07-2018

DOW – 79 = 25,916
SPX – 6 = 2871
NAS – 20 = 7902
RUT – 1 = 1713
10 Y + .06 = 2.94%
OIL = .09 = 67.86
GOLD – 3.30 = 1197.20


The economy created 201,000 new jobs in August. The unemployment rate was unchanged at 3.9%, an 18-year low. And wages finally moved higher, up 10 cents to $27.16 an hour. What’s more, the yearly rate of pay increases climbed to 2.9% from 2.7%, marking the highest level since June 2009. The June payroll report was revised down by 40,000 to 208,000; and July was revised 10,000 lower to 147,000 – a net loss of 50,000 jobs in revisions, bringing the three-month average gain to 185,000. Revisions are a regular occurrence. The August report will face 2 revisions. August has proved tough to measure accurately in recent years, at least initially. Over the past five years, every first estimate of job growth in August was subsequently revised upward — by 38,000 jobs on average – this is probably because August is a vacation month for many people; also, hurricanes have made it difficult to count jobs accurately. Still, August was the 95th consecutive month in which American employers hired more people than were fired, and there’s never been a longer streak. Over the past 12 months, the economy added 2.33 million jobs.


Several other reports show that many employers are running out of skilled workers to hire. With job openings exceeding the number of people seeking work, and with initial jobless claims at their lowest level since 1969, the labor market is still largely in good shape. Even the U-6 unemployment rate, a measure of unemployment that captures discouraged workers, and those who work part time but would rather have a full-time job, fell to 7.4% – a 17-year low. Over the past six months, 781,000 part-time workers have moved to full-time jobs.


The Labor Force Participation Rate declined 0.2% in August to 62.7%. This is the percentage of the working age population in the labor force.  One particular concern is the decline among what are considered prime-age workers, those 25 to 54. The share of this group in the labor force dipped to 79.3 percent, from 79.5 percent in July. That is substantially higher than in the depths of the recession, but still below its 2000 level, when it exceeded 81 percent. It’s hard to discern any positive long-term trend in the share of the adult population that is looking to be part of the work force. In mid-2008, more than 66 percent of adults were in the labor force, which fell to 62.7 percent in early 2015.


It has bounced around in the three and a half years since, but ended up at the exact same level. There is no obvious positive trend. A big part of that is demographic change, as the baby boom generation hits retirement age. The numbers are better if you narrow your focus to people in their prime working years, between ages 25 and 54. But there, too, there is reason to think that progress in putting more people to work has been nonexistent this year. The share of those 25 to 54 working, 79.3 percent in August, is the same as it was in February. A spike in that level in July wasn’t sustained last month.


Ultimately, if the economy is going to keep adding 200,000 jobs a month and grow at the kind of boom-time pace that was evident this past spring, it will need a growing work force to fill those jobs and make those goods and services. There’s not too much evidence that there are in fact hordes of younger people currently on the sidelines of the labor market who might soon be coaxed back in.


Minimum-wage increases in several states had done a lot to improve pay for some low-wage earners. Changing jobs can amplify a wage increase. There is a gap opening up between job-stayers and job-switchers, with switchers getting pay gains nearly a percentage point greater over the past 12 months, according to the Federal Reserve Bank of Atlanta’s wage tracker. In July 2014, the gap was just 0.6 percentage points. The fact that wage increases are finally showing up in the data is another piece of evidence that employers are coming up against the limits of the labor force. Just maybe, after years of trying every recruitment technique other than raising hourly pay, employers are starting to turn more to that option. The labor market could finally be so tight that employers just don’t have a choice if they want to attract and retain workers. Still, wage increases are below historic norms. Back in 2008, for example, the year the recession began, average hourly earnings rose 3.6 percent and well below the 4%-or so clip economists would normally associate with a jobless rate this low. So, even though wages growth is improving, there is still slack in the labor market.


In the post-recession period underemployment has replaced unemployment as the main indicator of labor market slack. Underemployment has not returned to its pre-recession level in many countries, whereas unemployment has. Large numbers of part-time workers, both those who choose to be part-time and those who are there involuntarily and would prefer a full-time job, report they want more hours. Most workers and job seekers are all too familiar with this pattern. In a post-Great Recession world, not only was there wage disinflation there was also requirement inflation — employers were able to get a lot more qualified workers for a lot less money. And those effects have lingered, in addition to worrisome trends like involuntary part-time work, contract and temp jobs, and job creation centered in low-wage industries.


The already-modest wage gains are also starting to be eroded by a gradually rising inflation rate. While inflation has been stubbornly low during the financial recovery, the CPI, the Consumer Price Index, for the past 12 months rose 2.9 percent before seasonal adjustment. That is the same rate of growth as we see in wages. So, workers aren’t seeing more purchasing power, meaning much of the pay increase is getting wiped out by more expensive gas and rent. It’s a wash. And that means the jobless rate could drop much lower before any substantive wage gains materialize. This month was a good move for wages, but it is premature to declare the end of labor market slack. There’s no doubt that this is the best economy in quite a long time for American workers, if they have the skill set and live in the right place. The higher pay is a sign that businesses are having to compete for workers. Still, the headline numbers will be strong enough for the Federal Reserve to hike interest rates when FOMC policy makers meet in about 2 weeks.


White-collar professional firms filled 53,000 positions, bringing the total created over the past 12 months to more than half a million. These are the fastest growing jobs in the country. Health-care providers hired 33,000 people, transport firms added 20,000 jobs and construction companies hired 23,000 workers.


Retailers cut almost 6,000 jobs. Government cut 3,000 jobs. Employment fell by 3,000 in manufacturing, the first decline in 13 months; however, the combined 93,000 manufacturing jobs that the government originally reported for May, June and July was revised down to 62,000. Tariffs and a scarcity of skilled laborers may finally be taking their toll. Already, some small US businesses have said the tariffs have prompted them to lay off workers and scale back plans to grow their business. Right now, the impact of tariffs in place is relatively small, but the uncertainty associated with tariffs is starting to have an impact, and with time and perhaps more tariffs, the impact is likely to grow.


Today, the trade war rhetoric was dialed up a notch. Speaking with reporters on Air Force One, Trump said long-threatened tariffs on $200 billion worth of Chinese goods would “take place very soon” — with more on the way – including an additional $267 billion that could be levied on short notice. If Trump follows through with both threats, tariffs would be imposed on $517 billion in Chinese goods coming into the US — virtually everything coming from the country. Last year, the US imported $505 billion worth of goods from China.


A White House spokeswoman said the US Office of the Trade Representative did not have a time frame and would continue to “run their process” on the set of tariffs on $200 billion of goods. The public comment period ended yesterday, so new tariffs could go into effect at any moment. China threatened to retaliate to that amount with tariffs on $60 billion worth of US goods, meaning almost all US goods sent to China would be subject to tariffs. China exports much more to the US than the US exports to China – that means China will likely resort to measures other than tariffs to retaliate against the US. All tariffs ultimately show up as a tax on US consumers; that in turn means workers will need even bigger wage increases just to break even.


For the week, the Dow lost 0.19 percent, the S&P fell 1.03 percent, and the Nasdaq shed 2.55 percent. The Nasdaq registered its greatest weekly percentage decline since late March, while the S&P’s weekly percentage drop was its biggest since late June.





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