US payrolls misses in August; earnings up from “lack of low-wage hiring”

Summary: Non-farm payrolls increase by 235K in August; well below expectations; previous two months’ figures revised up by 134K; jobless rate down to 5.2%, participation rate steady at 61.7%; “whisper number was for weak print”; jobs-to-population ratio ticks up to 58.5%; Delta halts labour gains in some industries; underutilisation rate falls from 9.2% to 8.8%; annual hourly pay growth increases to 4.3%; earnings up from “lack of low-wage hiring”.

The US economy ceased producing jobs in net terms as infection controls began to be implemented in March 2020. The unemployment rate had been around 3.5% but that changed as job losses began to surge through March and April of 2020. The May 2020 non-farm employment report represented a turning point and subsequent months provided substantial employment gains. Changes in recent months have been generally more modest but still well above the long-term monthly average.

According to the US Bureau of Labor Statistics, the US economy created an additional 235,000 jobs in the non-farm sector in August. The increase was well below the 787,000 which had been generally expected earlier in the week and much less than the 1.053 million jobs which had been added in July after revisions. Employment figures for June and July were revised up by a total of 134,000.

The unemployment rate fell from July’s rate of 5.4% to 5.2%. The total number of unemployed decreased by 318,000 to 8.384 million while the total number of people who are either employed or looking for work increased by 191,000 to 161.538 million. However, the increase was not enough to move the participation rate away from July’s rate of 61.7%.

“While payrolls did miss the consensus, the whisper number was for a weak print given the weakness seen in the high frequency data such as HomeBase,” said NAB senior economist Tapas Strickland.

Longer-term US Treasury yields rose moderately on the day. By the close of business, the 10-year bond yield had gained 3bps to 1.32% and the 30-year yield had increased by 4bps to 1.94%. The 2-year yield finished 1bp lower at 0.20%.

One figure which is indicative of the “spare capacity” of the US employment market is the employment-to-population ratio. This ratio is simply the number of people in work divided by the total US population. It hit a cyclical-low of 58.2 in October 2010 before slowly recovering to just above 61% in late-2019. August’s reading ticked up from 58.4% to 58.5%, still some way from its April 2000 peak reading of 64.7%.

Strickland noted “Delta has halted labour gains in some industries with a flattening in hiring in ‘leisure and hospitality’ after the sector had averaged job gains of 350,000 a month for the past six months.

ANZ Head of Australian Economics David Plank made a similar observation. “Hiring in leisure and entertainment ground to a halt following strong gains in June and July and retail jobs fell [by] 29,000. In other sectors such as professional services and manufacturing, jobs growth continued.”

Wage growth spiked in the US during the early stages of pandemic restrictions as lower-paid jobs disappeared at a faster rate relative to higher-paid jobs, disrupting the usual relationship between wage inflation and unemployment rates. Normally, wages tend to grow as the supply of labour tightens.

One measure of tightness in the labour market is the underutilisation rate. In August, this measure fell from 9.2% to 8.8%. Hourly pay growth over the previous 12 months accelerated from July’s revised rate of 4.1% to 4.3%. ANZ’s Plank attributed the rise in average hourly earnings “to a lack of low-wage hiring”.

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