August jobs report: deceleration shows up in spades

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August jobs report: deceleration shows up in spades

 – by New Deal democrat

My focus remains on whether jobs growth continues to decelerate, particularly manufacturing and residential construction jobs, but also total construction and goods production jobs as a whole; as well as watching for the increase in jobless claims to translate into a higher unemployment rate (a leading relationship that it has had for over 50 years).

And, with help from some significant downward revisions, further deceleration did indeed turn up in spades during August.

Here’s my in depth synopsis.

HEADLINES:

• 187,000 jobs added. This would be the lowest since January 2021, except for revisions to the prior two months, making June the lowest at 105,000 followed by July at 157,000.
• Private sector jobs increased 179,000. Government jobs increased by 8,000
• June revises lower by -80,000 and July by -30,000, for a total of -110,000. The three month moving average decreased to 175,000, the lowest since the pandemic lockdowns except for January 2021.
• The alternate, and more volatile measure in the household report rose by 222,000 jobs. The YoY% gain in this report is +1.8%.
• The U3 unemployment rate rose -0.3% to 3.8%, the highest since February 2022 . The civilian labor force, the denominator in the figure, rose sharply (by 736,000), and the numerator, the number of unemployed, also rose sharply (by -514,000).
• U6 underemployment rate rose 0.4% back to 7.1%, the highest since May 2022. 
• Further out on the spectrum, those who are not in the labor force but want a job now rose 133,000 to 5.370 million, vs. its post-pandemic low of 4.925 million set this past March.

Leading employment indicators of a slowdown or recession

These are leading sectors for the economy overall, and help us gauge how much the post-pandemic employment boom is shading towards a downturn.  These were mixed:

• the average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, was unchanged at 40.1, equal to its lows earlier this year and down -0.6 hours from its February 2022 peak of 40.7 hours.

• Manufacturing jobs rose by 16,000.
• Within that sector, motor vehicle manufacturing jobs declined -100. 
• Construction jobs increased by 22,000.
• Residential construction jobs, which are even more leading, rose by 2,400. It nevertheless continues to appear likely that January was the peak for this sector.
• Goods jobs as a whole rose 36,000. These should decline before any recession occurs. They remain up 1.6% YoY, which remains a very good pace compared with most of the last 40 years.

• Temporary jobs, which have generally been declining late last year, declined further, by -19,000, and are down 242,000 since their peak in March 2022.
• the number of people unemployed for 5 weeks or less rose 217,000 to 2,221,000.

Wages of non-managerial workers

• Average Hourly Earnings for Production and Nonsupervisory Personnel increased $.06, or +0.2%, to $29.00, a YoY gain of +4.5%, and the lowest since June 2021.

Aggregate hours and wages: 

• the index of aggregate hours worked for non-managerial workers increased 0.3%, and is up 1.2% YoY, a slight uptick from last month’s 1.1%, which was the lowest since March 2021.
•  the index of aggregate payrolls for non-managerial workers rose 0.6%, and increased 5.8% YoY, 0.2% slightly lower than last month, and the lowest since March 2021. Nevertheless this is significantly above the inflation rate, meaning average working class families have more buying power.

Other significant data:

• Leisure and hospitality jobs, which were the most hard-hit during the pandemic, rose 40,000, -290,000, or -1.7% below their pre-pandemic peak.
• Within the leisure and hospitality sector, food and drink establishments rose 14,900, but remain -32,400, or -0.3% below their pre-pandemic peak.
• Professional and business employment rose 19,000. These tend to be well-paying jobs, But this series has been decelerating, and is currently up 1.4% YoY, its lowest YoY gain since March 2021.
• The employment population ratio was unchanged at 60.4%, vs. 61.1% in February 2020.
• The Labor Force Participation Rate rose 0.2% to 62.8%, vs. 63.4% in February 2020.

SUMMARY

This was a weak report on both is Establshment and Household sections. I should emphasize that revisions to prior data significantly affected some of the numbers, but detailed discussion of those is a topic for another day.

Perhaps most significantly, the weakness that has been forecast for the last 5 months in the initial jobless claims data finally showed up in the unemployment and underemployment rates, both at their highest levels since the early part of last year. I should add that the level is *not* recessionary, as to fulfill the Sahm Rule it would have to be at least 4.0% for several months. 

But the headline jobs number as well as the revisions were weak and weaker – although I hasten to add that a three month average gain of 175,000 jobs is perfectly decent on an absolute scale. 

On the other hand, there were some definite bright spots, including the continued solid gains in aggregate pay for nonsupervisory workers even after inflation is taken into account, as well as gains in manufacturing and construction jobs. Last month I wrote that it looked like it would take about 9 months at the current pace of deceleration before goods producing jobs rolled over. This month there were outsized gains, but that estimate still looks good. This is significant because employment broadly in goods production typically turns down before a recession begins.

So, in sum: significant further weakness, but not at all recessionary, and on an absolute scale quite decent.