The widely anticipated employment report for the month of August did not change the outlook for the economy in a significant manner. The increase in jobs was 151,000, modestly below the consensus estimate of 170,000. It should be noted that this number will be revised, and revisions can frequently be quite significant.
The reason why this report was being widely watched, was that it had some bearing on whether the Federal Reserve would raise interest rates later this month. The early indication is that the increase was not large enough to cause the Fed to make a move at its next meeting.
Another aspect of the report that is frequently looked at is the change in wages. The monthly increase in wages for the month of August was just .1%, and the year over year increase came to 2.4%.
In recent months annual wage gains were starting to increase and were averaging 2.5% versus the 2.0% increases we had seen in recent years. This report would seem to indicate that the increase in wages seen in recent months may not be as strong as originally thought.
The national unemployment rate remained steady at 4.9% and jobless claims remain at very low levels. This would normally be indicative of a somewhat stronger labor market where wages should be increasing at a faster pace.
Most likely the slowdown in wage growth we saw this past month is a one time event. However, while wage gains are likely to be greater going forward, the pace of change is likely to continue to be gradual. The unemployment rate is low, though the labor force participation rate is also low, which means there are potential entrants into the labor force, which would tend to limit wage gains.
When looking at changes in wage gains people should also note that these figures are just averages. A younger person would normally expect to see larger wage gains, as their skill level increases. A person with 20 years experience would be more likely to see a salary increase more in line with the national average.
In addition changes in wage gains are also reflective of events going on in one’s specific industry. For example several years ago when oil prices were higher wage gains were strong in the energy industry, while now, wage gains are more muted, and there have been significant layoffs in the energy sector.
The growth in new jobs was fairly mediocre in August, though the figures were quite strong in June and July with both months having increases in the 270,000 range. Job growth changes bouncing around on a month to month basis are fairly common.
In a way what we see in the monthly employment report is fairly typical of the economy overall. At times it looks like the economy is getting stronger, then there are other months where it appears to be somewhat weaker.
In essence there has been little change in the economy in recent years. The monthly variation that is being reported in the various economic reports are just normal fluctuations. One month auto and real estate sales may show a larger increase, and the next month the figures might report a small decrease, but most likely the underlying trend has not changed.
Assuming the economy continues to expand at its current pace, the Fed will likely raise interest rates again later in the year. However, the increase will probably only be a quarter of a percentage point, so the impact will not be too significant.
This year sentiment has shifted from the economy being weaker earlier in the year and stronger in recent months based in part on the monthly employment data. The employment report for August being more average just signifies that the economy hasn’t really changed all that much this year.
