U.S. employment grows weaker than expectations in August, jobless rate remains steady at 3.7 pct

U.S. employment growth came in softer than anticipated in August, and the reading affirms that the trend underlying is weakening. Employment grew 130k in the month and the sum of the revisions in June and July was -20k. The average growth in the last six months has been 150k, compared with 223k for 2018. Therefore, there has been a clear deceleration of employment growth in 2019. Industries had mixed developments in August.

Employment growth was highest for business services, and education & health care which rose by 37k and 32k respectively. The government sector added 34k jobs in the month. The softest development was for trade & transport, declining 11k. Softness for this sector is consistent with what was observed so far in 2019, and is most likely related to the ongoing trade war. Manufacturing employment also continues to grow quite slowly, only with 3k in August.

The jobless rate remained stable at 3.7 percent in August. Employment and the labor force both rose solidly in the household survey, the former slightly more than the latter. Wages rose 0.34 percent sequentially in August, which is slightly above expectations.

Still the annual growth rate dropped to 3.2 percent. The still moderate wage growth, along with higher productivity, underpins the Fed’s view of muted inflation pressures. The tightness of the labor market would therefore not avert the Fed from reducing rates at the September meeting, which is fully priced in by the markets, noted DNB Markets in a research report.

So far there are no signals that this deceleration is impacting unemployment negatively. Unemployment appears to have stabilized at a very low level, and there are still no signs that this has spurred higher wage growth, stated DNB Markets. Continued wage growth at slightly above 3 percent underpins the Fed’s view that the inflation pressures continue to be muted. This signifies that the Fed can lower interest rates more without risking inflationary problems ahead.

“With the combination of slower employment growth, muted wage pressure and the escalation of the US-China trade war this autumn, we expect that the Fed will lower the signal rate by 25bp at the upcoming rate meeting September 18th, with further cuts in December and in March”, added DNB Markets.