August’s employment report was mixed. While the establishment survey showed a strong increase of 315,000 jobs, the household survey showed an increase in the unemployment rate by 0.2 percentage point to 3.7 per cent. The picture presented by both surveys is a bit more complicated.
In the case for the establishment survey, the two previous months of job numbers were revised down 107,000. The three-month average of 375,000 was maintained, although it was less than it would have been without the downward revision.
Importantly, the average workweek length fell by 0.1 hour. This resulted is a 0.1 percent drop in the index aggregate hours worked. This indicates a decrease in labor demand.
Strength of Household Survey Continues to Show
The household survey revealed that there was an increase in unemployment and a 442,000 increase for employment. The labor force participation rate (LFPR) rose 0.3 percentage points, while the employment-to-population ratio rose by 0.1 percentage points—tying previous peaks for the recovery.
There were some concerns about the low employment growth in the household survey despite the fact that the establishment survey was showing substantial gains. These concerns should be alleviated by the report.
The LFPR for prime-age workers (age 25 to 54), rose 0.4 percentage points. It is now 0.3 percent below its prepandemic peak. Prime-age women saw an increase of 0.8 percentage points. This puts their LFPR at 0.3 percentage points higher than its pre-pandemic peak. Their LFPR was 1.0 percentage points below its pre-pandemic peak, while prime-age women saw a 0.2 percentage point increase.
This is remarkable because 523,000 people report still being out of work due to COVID-19, while only 213,000 are prime-age workers.
The most high unemployment is among the most disadvantage groups
As is the norm when the unemployment rate increases, those most in need of work are the hardest hit. The unemployment rate for Black workers increased by 0.4 percentage points, to 6.4 percent. Hispanics’ unemployment rate rose 0.6 percentage point to 4.5 percent. Hispanic women’s unemployment rate rose from 1.1 to 4.3 percentage points, largely reverseing a 1.3 percentage-point drop in July.
The unemployment rate for high school graduates rose 0.6 percentage point to 4.2 percentage point, while that for college graduates fell 0.1 percentage point to 1.9 percent. This is a new low in the recovery.
Wage Growth Still Strong
The average hourly wage rose by 0.3 percent in August, but it grew at an annual rate 4.9 percent if you compare the three previous months (June July, August) and the three preceding months (March April, May). That’s higher than what is consistent with 2.0 percent inflation, but down from 6.1 percent at the end of 2021.
Lower-paid workers are still experiencing faster wage growth. Comparing the last three months with the previous three, the annual rate for production workers and nonsupervisory employees is 5.8 percent. In restaurants, it was at 5.2 percent.
Employment is now at a level far beyond pre-pandemic levels
The total number of jobs has increased to 240,000, with the private sector seeing an increase of 885,000. The Bureau of Labor Statistics has released preliminary benchmark numbers last month. This brings the total to 702,000. Private sector employment is up to 1,456,000.
Despite falling housing starts and Fed rate hikes, construction continues to add jobs.
August saw 16,000 construction jobs rise, and residential construction added 10,900 despite sharp drops in housing starts. It is possible that even with fewer starts, there will be more work because of the improvement in the supply chain.
Mortgage refinancing has taken the most from Fed rate increases to date. The May peak saw a decrease of 2.2 percentage as jobs in non-depository intermediation have fallen to 14,200.
While most sectors saw healthy job gains in August, state and local governments still lag behind
August saw 22,000 manufacturing jobs added, and the employment rate is now 67,000 higher than pre-pandemic levels. The preliminary benchmark revision would bring it up by 89,000. It is now 48,400 higher than its pre-pandemic peak. Airline employment rose by 2,200.
In August, nursing homes added 2,300 jobs and childcare added 2,800. These sectors, which have struggled for workers, are now down 14.2 and 8.4 percent respectively from pre-pandemic levels.
Restaurant employment slowed to 18,200 in July after increasing 77,500 in July. Despite sales being significantly higher, employment in the sector is still down 5.1 per cent from pre-pandemic levels. The number of jobs at Internet retailers was flat in August, and is now down 4,600 compared to the peak of November last year.
Although state and local governments added 9,000 new jobs in August, the number of employed is still low at 647,000, which is below pre-pandemic levels. With the preliminary benchmark revision, this decline will be close to 750,000.
Overall, a Positive Jobs Report
The overall report is positive with the establishment survey showing continued large job gains. This does raise concerns about the Federal Reserve Board raising rates more aggressively. This could lead to a bigger impact on future employment.
The 0.2 percent increase in the overall unemployment rate from 3.7 percent to 3.7% is not too alarming since it was accompanied in large part by gains in employment, participation in the labor force, and big gains in income. The Fed rate hikes are most likely to be felt by the most disadvantaged, such as Blacks, Hispanics, high school grads, and Hispanics.
It is important to note that the average workweek has fallen and that the index of total hours has fallen. This will likely be overlooked. Employers used to get their current workforce to work longer hours to make up for the lack of new workers. This no longer seems to be true.
Hours worked is also a measure of total labor demand, which seems to be declining as the Fed wants. With evidence of moderate wage growth, the Fed should have no problem easing back on rate hikes.
