U.S. labor market fundamentals remain solid

The drop off in the U.S. private sector payroll growth over the past couple of months has been striking. That news comes at a time when financial markets and Fed officials were already nervous about what impact a slowdown in Chinese economic growth and the stronger dollar could have on the U.S. 

"If there had been a genuine deterioration in labour market conditions, it was expected to show up as a rise in initial jobless claims. But claims remain unusually low at well below 300,000", states Capital Economics. 

The problem isn't on the hiring side either. The job openings rate was at a record high in July and the Conference Board's survey shows more households saying that jobs are plentiful now than those saying that jobs are hard to get. Both job openings and net jobs plentiful are close to prerecession levels and continue to show improvement.

"The slowdown in employment growth is partly just statistical noise. Over the next few months we expect to see something of a rebound, albeit only to 180,000 a month rather than the 200,000 plus gains that have become the norm over the past few years", says Capital Economics in a research note to its client. 

Gains of that magnitude were necessary when the unemployment rate was still extremely elevated, but trend employment growth was bound to slow as the economy gets close to full employment.