Payroll employment jumped by 201,000 jobs in August after being revised down by a net 50,000 jobs for the previous two months. The largest gains were in professional services, which include new college graduates, and were broad-based. The proportion of full over part-time hires remained strong, underscoring the willingness of employers to commit to benefits and the costs of holding onto employees for longer.
Health care continued to show strong gains in both ambulatory care and hospitals. This partially reflects the demographics of aging and the retirements by baby boomers, particularly in nursing. Wages for nurses have picked up along with signing bonuses this year, aimed at compensating younger workers for their student loan debt.
Transportation and warehousing picked up. Many trucking firms I have spoken to in recent months have said that they are casting a much wider net for drivers than they once did. Anecdotal reports suggest that wage gains depend on the driving distances. Short-haul delivery drivers outside of the union space for retailers are not receiving the wage gains and signing bonuses that long-haul drivers are, most notably in the oil sector.
The weak spot in the report was manufacturing employment, which fell for the month of August. Manufacturers, with the exception of steel and aluminum producers, are on the front line of tariffs and the uncertainty surrounding trade. Many manufacturers I have spoken to have been shocked by the jump in input costs. There is also a reluctance to hire, despite strong orders. They know some of their clients are stockpiling ahead of additional tariffs and fear what demand will look like if the trade war with China escalates further.
Average hourly earnings jumped 0.5% over the month, accelerating to 2.9% on a year-over-year basis. Part of that gain can be attributed to the strong gains in professional services hires, who tend to be paid higher wages and benefits than those in other sectors. The growth in wages overall is still subdued given the low level of unemployment but welcome all the same. A September rate hike by the Federal Reserve is a foregone conclusion. The Fed is expected to end the year with its fourth rate hike, which is still gradual but indicates a marked acceleration in the pace of rate hikes since the Fed began its normalization process in December 2015.
The household survey showed that the unemployment rate held at 3.9%. The participation rate fell across the board. Some of that decline reflects a pick-up in retirements. Companies are going to have to work harder to retain, rather than retire, older workers as we move forward. The largest decline in participation was among teens, which likely reflects a glitch in how the data is adjusted for when kids return to school.
Bottom LineAugust payroll employment remained solid and suggests that employers are upping their commitment to hire and retain workers, especially in professional services. The slight uptick in year-over-year wage growth will give the Fed the latitude it needs to continue to normalize short-term interest rates. The cloud on the horizon is trade tensions, which are adding to uncertainty in manufacturing, the sector tariffs were supposed to help.
T +1 312 602 8973
Na Tasha Lowe
T +1 312 754 7368
Copyright © 2018 Diane Swonk – All rights reserved. The information provided herein is believed to be obtained from sources deemed to be accurate, timely and reliable. However, no assurance is given in that respect. The reader should not rely on this information in making economic, financial, investment or any other decisions. This communication does not constitute an offer or solicitation, or solicitation of any offer to buy or sell any security, investment or other product. Likewise, this communication serves to provide certain opinions on current market conditions, economic policy or trends and is not a recommendation to engage in, or refrain from engaging, in a particular course of action.