Data from the Bureau of Labor Statistics (BLS) showed the surprise of only 142,000 jobs added to the economy in August, ending the six-month streak of net job growth above 200,000. Mixed revisions to June and July data subtracted 28,000 previously reported jobs, but the 12 month average jobs added remains over 200,000 through August. The unemployment rate dropped, as expected, from 6.2 to 6.1 percent—tying June for the lowest level since September 2008.
On net, private industries have increased payrolls by 2.1 percent from one year ago. Construction employment is up 4.0 percent from a year ago with the subsector of residential construction up 9.1 percent. Temporary help services continue to show strong but waning growth up 8.0 percent in the year. Perhaps another sign of a still strong labor market, child day care services employment rose by 2.4 percent for the year. By contrast, federal government employment fell 1.2 percent over the year while state and local government employment grew slightly, by less than 0.5 percent each.
The earnings picture was good. As hours held steady, hourly and weekly earnings rose 2.1 percent in the past year.
Digging deeper in to the household survey shows more mixed news. The drop in unemployment rate was caused by an increase in employed persons but also by discouraged workers leaving the labor force. The number of discouraged workers not in the labor force is down 91,000 from a year ago but has been rising since a June low.
While there was a decrease of nearly 200,000 in the long-term unemployed (27 weeks and more), the number of unemployed persons out of work for shorter durations increased by more than half that amount.
While the labor force participation rate is back to its 36-year low, the employment to population ratio has held steady after months of improving.
If one were searching for a more positive data point in this report, one could note that the number of workers with part-time jobs for economic reasons was down by 234,000 for the month, but this subset of data is quite noisy. Just two months ago, this figure was up by 275,000. From one year ago, the number of persons with part-time jobs for economic reasons is down by 621,000, on the whole a good sign.
What does this mean for markets? The Fed has moved away from a threshold unemployment rate as an indicator for considering rate increases, and the August employment report was surprisingly mixed after unambiguously strong reports earlier in the summer. Inflation expectations seem to be well anchored and inflation is, for now, just near the 2 percent target, but there is some potential for higher inflation if the recent monthly pace of increase is sustained. It’s widely expected that the FOMC will taper the bulk of asset purchases before increasing rates, suggesting that the first rate increase is still at least 2 to 3 meetings away—roughly at the end of 2014 or early 2015. However, stronger or weaker than expected economic performance could alter that timeline.