Remember back in 2011 when the first jobs report for August showed zero payroll growth? Commentators on both right and left said the economy was going back into recession. But revisions over the next two months took that number up to 104,000. The same thing happened in August 2012 and August 2013: a weak initial report followed by big upward revisions. That’s why the First Trust economic group, my firm, had a weaker forecast than anyone else and why we came closer than anyone else to today’s tepid payroll numbers.
Payrolls grew 142,000 in August, well below the 230,000 expected by economists, but we anticipate substantial upward revisions over the next couple of months. Meanwhile, the unemployment rate ticked down slightly, to 6.1 percent, as expected. The decline in the unemployment rate was due to a 64,000-person drop in the labor force while civilian employment, an alternative measure of jobs that includes small business start-ups, grew just 16,000.
The drop in the labor force pushed the participation rate back down to 62.8 percent, tying the lowest level since the late 1970s. The survey on the labor force is volatile from month to month, so it’s important to look at longer-term trends. In the past year, the labor force is up 524,000 while civilian employment is up 2.2 million, driving the jobless rate down to 6.1 percent from 7.2 percent a year ago. The aging of the Baby Boomers will keep putting downward pressure on the participation rate but, even so, we expect the participation rate to remain roughly flat to slightly up in the next year as improvement in job opportunities temporarily offsets population aging.
If you listen carefully, you should notice the deafening silence from those who obsess about part-time workers. That extremely volatile series was down 370,000 in August and down 400,000 from a year ago.
Perhaps the best news in today’s report was that average hourly earnings and total hours worked continued to increase and are both up 2.1 percent from a year ago. As a result, total cash earnings are up 4.2 percent from a year ago, more than enough for consumers to keep increasing spending.
The bottom line is that it’s important not to read too much into the August report. Recent years have seen big upward revisions in subsequent months and we think this time will be no different. In the past year, nonfarm payrolls are up 207,000 per month while civilian employment is up 182,000 per month. We expect the employment data to accelerate in the year ahead as payrolls continue to show healthy gains.