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Census Hires Buoy Jobs Report

RFP
Payroll employment rose a tepid 130,000 in August after being revised lower for the previous two months. More than 20% of the August gains can be attributed to government hiring; 25,000 of the 28,000 spike in government hires were for the 2020 Census.

Job gains were concentrated in the service sector. Health care and financial services (mostly insurance) and social assistance (care for the elderly) accounted for over half of the gains in the private sector. That reflects the demographics of aging and women who have children returning to the workforce. The remainder was dominated by professional services, mostly in computer programming and systems design.

We saw only a small increase in construction employment and almost nothing in the manufacturing sector. Mining and retail employment fell. Both the shale and retail sectors are suffering from a rise in bankruptcies. The shale industry became overly leveraged when rates were exceedingly low, while consumers continue to shift their preferences to online from in-store shopping. Retailers are expected to suffer another blow as higher tariffs squeeze their profit margins this fall. Trucking hires were also down, reflecting the rise in tariffs and a slowdown in exports.

The leisure and hospitality sector was weak. Labor shortages were a factor, especially in tourist areas that once relied heavily on immigrant labor. The Beige Book by the Federal Reserve Banks also reported more signs of bargain hunting by consumers. They shifted to budget hotels and tended to spend less once they arrived at their destinations. That may reflect the caution we saw in the consumer confidence figures in August as trade relations between the U.S. and China deteriorated.

Average hourly earnings rose 11 cents to $28.11 per hour. That marks a 3.2% increase in wages from a year ago, the same as we saw last month. Average hourly earnings look like they peaked in February of this year with 3.4% gains from a year ago. The bulk of the gains we have seen have been concentrated in low-wage jobs. We are still waiting for a trickle-up in the food chain to see gains for middle-income workers. Don’t hold your breath.

One silver lining was an increase in hours worked, notably the manufacturing sector, which has been weak. However, those gains were not enough to boost overtime hours, which would provide more of a lift to weekly paychecks.

Separately, the unemployment rate held at 3.7%. Participation in the labor force edged up a tick. Most of that increase was among the more highly educated white women. We lost all of the gains we had seen among teens during the summer. That is after adjusting for seasonal variations, so it’s not just kids returning to school.

We are watching the plateau in the unemployment rate carefully as it could be a sign of greater weakness down the road. Recent research by Federal Reserve economist Claudia Sahm shows that the economy is in a recession when the three-month moving average of unemployment hits 4.1%, if 3.6% is the low on unemployment in this cycle. Her work is so compelling that the former Chair of the Council of Economic Advisers, Jason Furman, has suggested that Congress adopt fiscal stimulus based on her analysis of unemployment and recessions. We too often do not realize we are in a recession until well after it has started.

Bottom Line
Today’s employment data, coupled with earlier revisions to 2018, suggest that we have hit a tipping point. We are revising more to the downside than to the upside. That is likely in response to trade tensions and the weakness we are seeing abroad. Monthly job gains have slowed to a 158,000 pace in 2019 from a 223,000 pace in 2018, but we know that the current estimates for 2018 will be revised down when the benchmark revisions are released in early 2020. The August employment report will affirm a rate cut by those who were comfortable with another quarter-point cut in September but will not eliminate dissents.

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