August Employment Report Does Not Support “Tapering” in September
According to the Bureau of Statistics, total nonfarm payrolls increased by 169,000 in August (below expectations), and the unemployment rate fell 0.1% to 7.3% against 7.4%e. The average workweek for all employees on private nonfarm payrolls increased by 0.1 hour in August to 34.5 hours while average hourly earning decreased 0.2% MoM:
Total nonfarm payroll employment increased by 169,000 in August, about in line with the average monthly gain of 184,000 over the prior 12 months. In August, job growth occurred in retail trade and health care, while employment in information declined. Employment continued to trend up in food services and drinking places, professional and business services, and wholesale.
The change in total nonfarm payroll employment for June was revised from +188,000 to +172,000, and the change for July was revised from +162,000 to +104,000. With these revisions, employment gains in June and July combined were 74,000 less than previously reported.
Both the number of unemployed persons, at 11.3 million, and the unemployment rate, at 7.3 percent, changed little in August.
The average workweek for all employees on private nonfarm payrolls increased by 0.1 hour in August to 34.5 hours
In August, average hourly earnings for all employees on private nonfarm payrolls rose by 5 cents to $24.05
In August, the number of long-term unemployed (those jobless for 27 weeks or more) was about unchanged at 4.3 million.
The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) declined by 334,000 to 7.9 million in August.
I – My view:
1/ Nonfarm payroll figures were below expectations and data from June and July were revised downward. As a consequence, the short term momentum of NFPs is weakening and is still below the threshold of 200K which is not a minimum acceptable for Fed:
-> Moving average 3 months: 148K
-> Moving average 4 months: 155K
-> Moving average 5 months: 164K
-> Moving average 6 months: 160K
2/ The decline in the unemployment rate to 7.3% in August, was due to a decline in the participation rate (lowest since Aug 1978). If the participation rate had held steady, the unemployment rate would have increased to 7.5% instead of declining to 7.3%.
3/ Concerning qualitative indicators, even if the number of unemployed people decreased (-198K), long-term unemployed (those jobless for 27 weeks or more) increased by 44K.
II – Implications on Fed:
Even if labor market conditions are improving slightly, we are far away from Fed’s targets. Most of qualitative indicators were little changed in August and the fall of unemployment rate is only explained by a fall of participation rate which is not a good news.
Therefore, my conviction remains that consensus view of “tapering” in September is not realistic.