In August payrolls grew by 201k, 11k more than expected but that was completely offset and then some by the downward revisions of a combined 50k in the two prior months. According to the household survey, 423k jobs were lost but because the size of the labor force fell by 469k, the unemployment rate ticked up by one tenth to 3.9% but the all in U6 rate was down one tenth to 7.4% as the number of those NOT in the labor force rose to 96.3mm, a fresh record high. The participation rate fell by two tenths to 62.7%, matching the lowest since May 2016 and the employment to population ratio fell too. Job Leavers as a percent of unemployed, a measure of those having confidence in leaving their market for greener pastures (aka, higher wages) rose to 14%, the highest since October 2000.
That was enabled by a continued rise in wages. Average hourly earnings rose by .4% m/o/m, double the estimate and the y/o/y gain was 2.9%, the best since April 2009. Yeah for employees. Average weekly earnings rose by 3.2% y/o/y and back near the upper end of the recent range. Hours worked were unchanged at 34.5. Finally we might be on the cusp of seeing the higher wages that I’m seeing most everywhere show up in the aggregate numbers. Notable too here reflecting labor gaining more leverage over employers, the number of employed persons working part time for economic reasons fell by almost 200k. And, the pool of available labor fell by 309k and is just above the lowest level since 2007.
With respect to certain areas of the labor market, manufacturing was the surprise with its decline of 3k, the first drop since July 2017 (trade worries showing up and/or reflects the difficulty in finding skilled labor?). Construction jobs grew by 23k which is contrast to the slowdown seen in the ADP report. Retail again shed jobs and there was a slowdown in the pace of hiring’s in leisure/hospitality. Trade/transport, where we know jobs are desperately needed, saw an increase of 37k, the best in 3 months.
Bottom line, the pace of hiring has slowed slightly to a rate of 185k over the past 3 months from 192k over the past 6 months, and 194k over the past 12. The pace was 195k in 2016, 22k in 2015 and 250k in 2014. We know this is due to the shrinking supply of labor and finally the balance of power is shifting to workers from employers. This was clearly reflected in the wage data today. The drop in manufacturing employment is a bother considering everything going on with tariffs and the slowdown in global trade.
In terms of the market response, call this news stagflationary as Treasuries are solely responding to the wage news and not the jobs miss. The 2 yr yield is jumping by 4 bps to 2.68%, matching the highest level in 10 years. The 10 yr yield is higher by almost 5 bps to 2.92%.
AVERAGE HOURLY EARNINGS