Employment Report Continues Disappointing Trends

Today's employment report continued the longer term trend of slowing job growth and the declining rise in hourly wages. The headline number of 156,000 was below the forecast of 180,000 and the prior two months were revised down by a combined 41,000 jobs. Accordingly the unemployment rate ticked up to 4.4%. The Labor Force Participation rate remained unchanged but the Employment-Population ratio decreased slightly.

More disturbingly, the average hourly wage rose by 3 cents, a decline from a 9 cent increase in July. While the hourly wage growth for the past 12 months has been 2.5%, the actual rate of increase has been declining over that period as well. In 2016, the annual increase was 2.9%. That is still well below the over 3% growth that we saw before the Great Recession 10 years ago.

Job growth has essentially been slowing since 2014 as well.


The hawks still seem to be in control at the Fed and I'm not sure that this report will change their view all that much. As I've written before, there seems to be this inherent belief that these low unemployment number will, at some point, create a surge in wages and inflation that must be nipped in the bud before it even begins. But it is hard to ignore the fact that, despite the low unemployment rate, job growth is slowing, wages increases are falling, and inflation continues to run below the target range.

What this report might do is delay the unwinding of the Fed balance sheet for at least a few more months. An interest rate hike is surely not going to happen this month as it was not expected until December anyway. But this report will surely give the critics of the Fed's prior and planned rate hikes even more fodder.

While Trump may tout the 3.0% GDP growth in the second quarter, the trend lines of below target inflation and decreasing job and wage growth are not a good sign. In addition, the economy will have to deal with the short term rise in gas prices prompted by the disaster on the Texas coast. That may be eventually offset by the increased spending that the recovery effort will require. But, as we all know, the economy is a key drive of political popularity. Trump's polls are already abysmal enough. A shrinking economy may make his current numbers actually look good.