Economy added just 130,000 jobs in August

Hiring slowed in August as employers added 130,000 jobs, further stoking recession fears and strengthening the Federal Reserve’s argument for another cut in interest rates this month.

The unemployment rate was unchanged at 3.7%, just above a 50-year low, the Labor Department said Friday.

Economists surveyed by Bloomberg expected 160,000 job gains.

Further dimming the latest employment snapshot: Payroll gains for and June and July combined were revised down by a total 20,000.

The Labor Department has tended to undercount August job totals in its initial estimate and then revise the number higher the following months, says economist Jim O’Sullivan of High Frequency Economics. That pattern increased the risk of a disappointing jobs report Friday. But the payroll total was inflated by the federal government’s addition of 25,000 temporary workers for the 2020 census. Without those gains, the August number would have been even weaker.

More broadly, payroll growth has slowed to an average monthly pace of 158,000 this year from 223,000 in 2018, though last year’s figures are expected to be revised down substantially based on a recent preliminary estimate. A low unemployment rate has made it harder for employers to find qualified workers.

Also, the economy has slowed from its brisk pace last year because of the fading impact of Republican-led tax cuts and spending increases, President Trump’s trade war with China and sluggish economies in other nations. The trade fight has also dampened business confidence and investment and hurt manufacturers.

“The trend is softening, as firms scale back hiring plans alongside capital spending, in the face of prolonged and deep uncertainty,” economist Ian Shepherdson of Pantheon Macroeconomics wrote a note to clients.

Consumer spending, which makes up 70% of economic activity, has remained robust, leaving a split-screen economy, with services firms doing well and hiring at a steady pace while factories struggle.

Although the economy generally remains on solid footing, the Fed worries that the trade war, along with feeble business investment and industrial output, could tip the U.S. into recession. A new 15% tariff, mostly on consumer goods from China, took effect Sunday.

As a result of the mounting risks, the Fed lowered its key interest rate last month – by a quarter percentage point – for the first time in a decade. Another cut is expected at the Fed’s Sept. 17-18 meeting.

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Wages rise solidly

Average hourly earnings rose a healthy 11 cents to $28.11, but that nudged down the annual gain from 3.3% to 3.2% simply because of a strong performance in August 2018.

Yearly pay increases began topping 3% in the second half of 2018 as employers bid up to attract fewer available workers but haven’t gained further momentum. That has kept inflation subdued, providing the Fed another reason to reduce rates in the months ahead. If pay continues to accelerate, putting stronger upward pressure on prices, that could pose a dilemma for Fed officials. 

Industries that are hiring

Professional and business services and health care led the job gains with 37,000 each. Financial firms added 15,000; construction, 14,000; and leisure and hospitality, 12,000.

Manufacturers added just 3,000 jobs in a sign the trade war and slowing global economy continue to take a toll. Retailers cut 11,000 jobs, partly reflecting a longer-term shift to online shopping. 

Workweek rebounds

The average workweek rose to 34.4 hours from a two-year low of 34.3 hours in July. The feeble July showing raised concerns because businesses often cut the hours of existing employees before pulling back hiring. The rebound in August eases those worries, but the monthly numbers are volatile and it’s worth keeping an eye on the workweek in the months ahead to see if it slips again.

Black unemployment hits record low

The unemployment rate for African Americans fell sharply from 6% to 5.5%, the lowest on records dating to 1972. As employers struggle to find workers amid historically low unemployment, they’ve been more willing to hire Americans in disadvantaged groups who traditionally have faced more obstacles in the labor market.

But keep in mind the report is based on a survey and the monthly data is volatile. A sharp drop like this one could be at least partly reversed in the months ahead.

Labor force participation rises 

The share of American adults working or looking for jobs rose from 63% to 63.2%, matching the highest level in the past five years. Discouraged workers, disabled people and others on the sidelines have been drawn into a healthy labor market that has given job seekers more options and higher wages.

That has offset a longer-term decline in labor force participation caused by baby boomer retirements and kept the unemployment from falling last month.

What it means

The August report was generally disappointing with just 130,000 job gains. But there were several positive signs, including solid wage growth, a rebound in the workweek and a strong rise labor force participation. Also, Labor has tended to undercount employment in its initial August estimate — a trend possibly related to the transition from summer jobs — that could mean upward revisions in coming months.

As a result of the mixed results, the Fed has more evidence to cut rates this month but likely by just a quarter percentage point, economists say, rather than the half-point move some investors are seeking.