Payrolls registered a decent monthly increase in August, but downward revisions make the trend of job growth look considerably weaker than when July’s jobs report was released. Employers added a net 142,000 nonfarm payroll jobs in August, below the 165,000 consensus forecast. August was better than the 114,000 monthly increase in last month’s report, but that increase was revised down to 89,000 in the latest data, and June was revised down, too, to 118,000 from 179,000.
Factoring in those revisions, payroll growth averaged a modest 116,000 in the three months through August, down from a 170,000 three-month average in last month’s report. And over the last 12 months, payrolls averaged a 157,000 monthly increase after accounting for the 818,000 downward revision to employment in March 2024 which was announced in mid-August (The annual preliminary benchmark revision). The conventional wisdom is that one bad report doesn’t change the trend. But in this case, the trend is clearly weaker than in the prior report.
The unemployment rate edged down to 4.2% in August from 4.3% in July, which was the highest since late 2021. The unemployment rate for Asian Americans rose to 4.1% from 3.7%. For Black or African Americans it pulled back to 6.1% from 6.3%. For Hispanic or Latino Americans, it rose to 5.5% from 5.3%. The unemployment rate for White Americans was unchanged at 3.8%.
While the unemployment rate edged lower on the month in August, its trend is higher, and that is concerning. August and July’s jobs reports both triggered the Sahm Rule, former Fed economist Claudia Sahm’s observation that when the unemployment rate’s 3-month moving average rises half a percent or more relative to its minimum over the previous 12 months, the economy has historically been in recession. This insight is powerful because economic data often show the economy doing better than it actually is during the early stages of a slowdown, only to be revised weaker later. The downward revisions to payrolls data announced over the last month could be an example of this.
With concerns noted, mid-2024 is likely an exception to the Sahm Rule, with the economic expansion continuing despite a rising unemployment rate (Dr. Sahm thinks so too). The recent uptick in the unemployment rate in part reflects rising labor force participation. The participation rate for workers ages 25 to 54 was 83.9% in August and 84.0% in July, the two highest months since early 2001. Also, increased immigration in the last few years is adding to growth of the labor force. Aside from the job market data, recent business and consumer surveys and reports on consumer spending point to an economy that is slowing but still in an expansion, not in recession.
Jobs report details on aggregate hours and earnings also point to a continued economic expansion. The average workweek lengthened to 34.3 hours from 34.2 in July. Average hourly earnings rose 0.4% on the month and 3.8% on the year, up from 3.6% in July and tying June. Annual wage growth in the last three months was the slowest since mid-2021. With modest job growth and a slightly longer workweek, aggregate hours worked on U.S. payrolls rose 0.1% on the month and 1.2% on the year. Aggregate payrolls rose 0.4% on the month and 5.3% on the year, handily outpacing CPI inflation which likely ran about 2.6% in August (The August report is not out yet).
In sum, the job market is in decent shape but moving in the wrong direction. Job growth is lagging behind growth of the labor force, fueling an increase in unemployment.
The Fed will see the August jobs report as strengthening the case for less restrictive monetary policy. The Fed’s June dot plot showed most Fed policymakers thought it likely would be appropriate to cut rates by one quarter to one half a percentage point by year-end, but that projection is badly out of date now. At the next policy decision on September 18, the Fed looks slightly more likely to cut interest rates by a quarter percent than by a half percent, but it will be a close call.
Comerica forecasts for the Fed to cut short-term interest rates a full percentage point between now and the end of January. That should boost credit-intensive parts of the economy like housing, manufacturing, and business investment, stabilize job growth, and prevent the current slowdown from deepening.
Bill Adams is a senior vice president and chief economist at Comerica. Waran Bhahirethan is a vice president and senior economist at Comerica.
