August Employment Report Shows Business Caution, But...

The August Employment Report shows business hiring caution but has positive elements regarding the outlook.  The hiring caution is seen in the Payroll slowdown and jump in part-time workers.  The positive elements are the rebound in the Workweek and the further increase in the Labor Force Participation Rate. The Report should not stop the Fed from cutting rates by 25 BPs at the September 17-18 FOMC Meeting.

The +130k m/m increase in Nonfarm Payrolls, with Private Payrolls up only 96k, shows sluggish growth in many industries and continued decline in Retail Jobs.  Curiously, manufacturing-related data were better than survey and anecdotal evidence suggested: manufacturing jobs rose 3k (although most industries cut jobs), the workweek rose (including overtime), and temporary jobs rose (viewed as mostly manufacturing jobs).  Industrial Production should rise smartly this month.   Construction jobs also sped up, with the gains in residential and non-residential.  Mining jobs fell, however, possibly as oil drilling activity reacted to the lower oil prices.

Total Hours Worked rose a solid 0.4% m/m, thanks largely to the rebound in the Average Workweek.  They stand 1.1% (annualized) above the Q219 average.  So, they support estimates of 1.5-2.0% Q319 Real GDP Growth, although the relationship between THW and Real GDP Growth is variable as Productivity Growth can fluctuate.

The Household Survey data were the most interesting in the Report.  Civilian Employment and Labor Force both surged over 500k m/m.  More than half of the job growth was in part-time jobs.  But, the important point is that the Labor Force Participation Rate continued to climb, raising the possibility that potential trend growth is higher than the Fed's 1.8-2.0% estimate.  The increased workforce participation is possibly in response to higher wage rates.   While the 0.4% m/m increase in Average Hourly Earnings was probably partly a consequence of calendar considerations, it also could reflect the tight labor market.  The headline Unemployment Rate was steady at 3.7%, but unrounded it slipped to 3.69% from 3.71%.  The decline was concentrated in African-American, Latino Ethnicity, Teen-Age and Women Unemployment Rates.