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Ignore the Unemployment Rate, Take Aspirin



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The August unemployment rate fell to 8.1 percent (from 8.3 percent), but this top line is fundamentally misleading. The overall report is weak:

Non-farm job creation was only 96,000; with 103,000 in the private sector. Unfortunately:

  • The breadth of job creation narrowed, and narrowed sharply in manufacturing . . .
  • June and July job creation was revised down a total of 41,000 . . .
  • Average weekly hours for production workers was flat, and . . .
  • Average hourly and weekly earnings fell.

The unemployment rate fell as a result of a horrific household survey:

  • The labor force fell by 368,000, cutting the labor-force-participation rate by 0.2 to 63.5 percent — the lowest since 1981, and . . .
  • A decline in employment of 119,000.

The Hispanic unemployment rate dipped from 10.3 percent to 10.2 percent.

In short, while employers reported modest hiring, underlying income growth (from hours and wages) stalled, and the parallel readings on labor force participation and unemployment were flatly bad news.

Data junkies here’s your fix: the June U-6 (the broadest measure of unemployment) fell to 14.7 percent, down from 15.0 percent.

The bottom line: The August jobs report tells a tale of an exhausted and discouraged American workforce. The economy is going sideways, facing downside risks, generating little income, and discouraging workers. The report virtually guarantees that the Fed will move at its next meeting and raises the urgency of policymakers addressing the fiscal cliff. 



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