August's Jobs Report: A Look Beyond the Headlines Reveals (More) Mediocrity

Posted by jbrumley on September 1, 2017 10:04 AM

With nothing more than a passing glance at the headlines, it would be easy to conclude that as of August, the U.S. jobs market wasn't rock-solid. Not only did the unemployment rate creep a little higher -- from 4.3% to 4.4% -- the total number of jobs created (net) last month didn't quite live up to expectations.

There's a flipside to that coin for "in the know" investors though. That is, when an economy is at or new full employment as the United States economy appears to be, it's difficult if not impossible to add more jobs. It's almost as difficult to keep the unemployment rate suppressed at a very low 4.3%. August's  jobs report was about as good as we can reasonably expect, and is still quite positive on an absolute basis.

Well, as it turns out, a look at the rest of the data (numbers that weren't touted in headlines) raises some legitimate red flags. The U.S. jobs market may not be as infallible as some were assuming just a month ago.

The discussion can't, and shouldn't, go any further without acknowledging that hurricane Harvey may have played a significant role in August's disappointing employment report. The storm essentially shut down a massive amount of commerce -- and energy-related commerce in particular -- in the eastern part of Texas and the southern portion of Louisiana on August 25th, displacing some workers. The exact degree of that impact can't be fully known, but can arguably be quantified as at least "some."

Either way, regardless of the reason, a bigger swath of Americans are now out of work because of Harvey, and will be for a while. That's ultimately a blow to the economy.

With that as the backdrop, the country added 156,000 new jobs last month versus expected growth of 170,000 payrolls. As was noted, that was enough of a letdown to let the unemployment rate tick higher by ten basis points... to 4.4%.

090117-unemployment-rate

That's not the alarming aspect of Friday's jobs report, however.

Though the economy technically added payrolls in August, more people aren't working right now. Less are working. The total number of employees fell from July's tally of 153.51 million to 153.44 million this time around, while the total number of unemployed people grew from 6.98 million to 7.13 million. In that the unemployment rate is calculated by dividing the number of unemployed (officially unemployed) people by the size of the labor pool, that's how you get a slight increase in the unemployment rate; the total number of working individuals, oddly enough, doesn't factor into the unemployment rate calculation.

Meanwhile, the total number of people not technically counted as part of the labor force but still looking for a job surged from 5.42 million to 5.84 million... numbers that don't adversely impact the unemployment rate, though arguably should.

090117-employed

Again, to what degree Harvey inflated the numbers we don't want to see inflated isn't clear, though it certainly had an impact. Regardless of the impact, a greater number are now without jobs, or encouraging job prospects.

The not-so-hot story is re-told in a different way using the labor force participation rate and the employment/population ratio.

Neither cratered, to be clear. In fact, the labor force participation rate held steady at 62.9%, while the employed portion of the United States population fell back only a bit from 60.2% to 60.1%. In that both measures have been in modest uptrends though, the stall of those uptrends isn't exactly the step forward some were quietly hoping for.

090117-ratios

Granted, neither of the uptrends in question were straight-line uptrends, but now isn't the time for either to show any weakness.

Last but not least, wages went up -- again -- last month, salvaging an employment report that could have otherwise been interpreted as more bearish than bullish. Production and non-supervisor jobs are now paying an average of $9.29 per hour, while all jobs are paying, on average, $10.80 per hour. Both are records, extending a streak of broken records that started May (though had been rising since February. In that hourly pay isn't impacted by removing workers displaced by Harvey from the equation, this metric indicates there's still greater demand and weakening supply of employees, forcing employers to pay more.

090117-wages

While the length of the average workweek fell back to the long-term average of 34.4 hours, this is a figure that could have been impacted by Harvey-related shutdowns. All things considered, it held up reasonably well.

All in all, last month's jobs picture is hardly the one anyone was hoping for, though we have to concede the worst storm in the country's history -- not to mention the most expensive -- was a big part of the reason for many of the red flags we see. On the other hand, an understandable reason for those red flags doesn't negate their effect. There are still more than a few unemployed people that won't be getting jobs in the immediate future, and as such they won't be fanning the flames of the United States' consumer-driven economy.

In terms of a school grade, August's jobs report earned a B-. Another one like it a month from now would earn a C+, just on principle.

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