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US: Payrolls Have Another Solid Month, While the Unemployment Rate Rises from its Pre-pandemic Low 

The U.S. economy added 315k jobs in August, coming in slightly above the consensus forecast of 300k. Revisions to the two prior months were negative, subtracting 107k jobs to the previously reported figures, though most of the pullback was concentrated in June (revised down by 105k).

Employment gains on the service side (263k) were disproportionately concentrated in professional & business services (68k), health-care (62k), retail trade (44k) and leisure & hospitality (31k), though financial services (17k) and wholesale trade (15k) also recorded decent gains. Goods producing industries (45k) had another solid month of hiring, with manufacturing (22k) and construction (16k) both chipping in with decent gains. Motor vehicle & parts (-2k) shed jobs in August, which is consistent with some automakers announcing layoffs in recent months.

The unemployment rate ticked higher by two-tenths of a percentage point (pp), rising to 3.7%, as gains in household employment (442k) were far outstripped by a rebound in the labor force (786k). As a result, the participation rate edged higher by 0.3pp to 62.4% –  matching its previous cyclical high.

Average hourly earnings rose 0.3% month-over-month (m/m) – a decent deceleration from the 0.5% m/m gain seen the month prior. On a year-over-year basis, wage growth held steady at 5.2%.

Key Implications

Payrolls surpassing expectations is something we’ve become accustomed to seeing. Since the start of the year, non-farm employment has meaningfully beat the consensus forecast in seven of the last eight months.

The reversal in the unemployment rate should not be viewed negatively as it was largely driven by an increase in labor supply. We have long said that the participation rate has been underperforming, and without more workers entering the labor force, employment gains would soon start to fade.

The recent underperformance of household employment relative to non-farm payrolls has been hard to miss. While the household measure did outstrip non-farm in August, the former has shown total gains of just 274k since April compared to nom-farm’s 1.9 million. The underperformance appears to be explained by a decline in unincorporated self-employed workers (included in household employment but not non-farm) and an increase in multiple job holders, which count as separate jobs in the establishment survey but not the household survey. With the share of multiple job holders still below its pre-pandemic level, it seems likely that payrolls will continue to outperform household employment over the near-term.

Financial markets appear to be greeting the report positively, with equities rebounding and Fed pricing of a 75bps hike in September coming in a bit (from 74% pre-release to 61% currently). Whether the Fed goes by 50bps or 75bps later this month, Chair Powell was explicit in his Jackson Hole speech that the FOMC still has considerable work to do and policymakers are willing to sacrifice some slowing in economic growth in order to achieve price stability.

TD Bank Financial Group
TD Bank Financial Group
The information contained in this report has been prepared for the information of our customers by TD Bank Financial Group. The information has been drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does TD Bank Financial Group assume any responsibility or liability.

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