U.S. Unemployment Rate Jumps to 6.1%

The August employment report clearly indicates that the labour market remains under stress. The picture is one of modest, but steady weakness, with jobs declining every month so far this year. The 84,000 drop in August follows downwardly revised losses of 60,000 in July (51,000 previously) and 100,000 in June (51,000). The August drop is close to the average monthly decline so far this year of 76,000. The persistent erosion of jobs is consistent with the unemployment rate, derived from a separate household survey, rising steadily in recent months. In August, the rate jumped to 6.1% from 5.7% in July and a low this year of 4.8% in February.

The weakness in employment is relatively broadly based with every sub-component declining in the month except government, which managed a 17,000 increase. The rise in the latter did not prevent service-producing jobs in aggregate dropping 27,000 in the month, with offsets mainly coming from professional and business services (down 53,000) and temporary help services (down 37,000). Goods-producing jobs fell 57,000, led by the manufacturing component which was off 61,000.

One slight offset to the weakness evident elsewhere in today's report was the fact that the workweek remained steady at the upward revised level in July of 33.7 hours. However, the index of aggregate weekly hours, which reflects the combined impact of both employment and hours worked, still declined for the fifth consecutive month. The average level of this index in July and August is now down an annualized 1.5% relative to the second quarter. Even adding some productivity growth, the data still implies the risk of flat overall GDP growth in the third quarter.

Despite the sharp upward trend in the unemployment rate, the key wage measure in today's report, average hourly earnings, indicated upward pressure. This index was up 0.4%, which sent the year-over-year rate up to 3.6% in August from 3.4% in July.

Today's report clearly indicates that labour markets remain weak. However, some solace will be taken from the fact that there has not been any marked deepening of employment declines as implied by recent levels of jobless claims. The level of this indicator through August is more consistent with payroll employment declines of well over 100,000. Various special factors related to seasonally adjusting the data through the summer shutdowns in the auto sector and the extension of unemployment benefits are likely biasing up the claims data. However, with employment dropping every month so far this year along with the unemployment rate moving steadily higher, the downside risks to growth from labour markets remain sizeable. Thus today's data argue for the central bank to keep monetary conditions accommodative with the Fed funds rate being maintained at 2.00% in the near-term.

RBC Financial Group
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The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.