Economic Forecasts

Modest Gains in August Hiring a Good Omen

Look past the official count of job losses in August: Private employers are adding to payrolls.

Job growth is only likely to get better from here on in, with monthly gains exceeding 100,000 by year-end. A 60,000 increase in payroll numbers in August -- after accounting for the loss of 114,000 temporary government workers employed by the Census Bureau -- makes eight consecutive months of gains in private company payrolls. The midyear economic soft patch is largely to blame for the modesty of the August uptick, as business activity barely crept ahead and employers remained skittish about hiring. While only mildly encouraging, that should help dispel fears of a double-dip recession, which we still view as unlikely.

In addition, there were some other encouraging aspects of the employment report. First, the government always revises the previous two months’ results -- in this case, June and July -- and the revisions were uniformly upward this time, for a net increase of 123,000 over preliminary estimates. Additionally, hiring of temp workers is again on the rise, increasing by 17,000 in August. July witnessed a small decline of 1,000 temp workers (initially reported as a 6,000 decline), which raised anxiety about job gains going forward. Since temp workers are the first to go, cutbacks in their employment frequently presage broader declines.

Another notable aspect of the August report: The rise in unemployment, to 9.6% from 9.5% during June and July. This was expected, however, for reasons having to do with the unemployment insurance system. As federal funding for the long-term unemployed ran out in May, millions of people dropped off the rolls during June and July. This showed up as a decline in the labor force, presumably as many stopped reporting themselves as “looking for work,” a prerequisite for receiving benefits. But as funding was replenished in August and beneficiaries returned to the dole, the labor force predictably climbed. So the June-July dip was somewhat artificial.

The modest job gains of recent months will improve going forward, for two key reasons. First, as we’ve noted previously, the midyear economic slowdown seems due to a variety of special factors that are unlikely to persist or will reverse. The housing downturn and a pullback in consumer spending on energy efficient appliances -- both related to sunsetting tax credits -- and the loss of temporary Census workers fit the former category. The resumption of jobless benefits for the long-term unemployed fits the latter. Hence, economic activity should pick up from the summer doldrums in the months immediately ahead.

Second, the business cycle has now passed the familiar phase where employers can substitute productivity gains for hiring workers. The first year of an economic expansion always shows stellar productivity gains as employers strive to make due with their existing workforce. That was certainly the case this time around. Labor productivity advanced an impressive 6.3% for the year ending with the first quarter. Over time, however, the ability to eke more out of existing labor resources wanes and labor productivity slows. In fact, there was a decline in labor productivity during the second quarter, falling at a 1.8% pace. Future growth in output will require employers to add workers.

Most Popular

Is the Stock Market a House of Cards?
investing

Is the Stock Market a House of Cards?

The stock market volatility we’ve been experiencing and the apparent disconnect with the broader economy have some investors wondering just that. But …
October 12, 2020
Stock Market Holidays in 2020
Markets

Stock Market Holidays in 2020

Is the stock market open today? Take a look at which days the NYSE, Nasdaq and bond markets take off in 2020.
October 12, 2020
10 Worst Things to Keep in Your Wallet
Scams

10 Worst Things to Keep in Your Wallet

Storing your passport book or card, a spare key, or any of these other important items in your wallet leaves you open to identity theft -- or worse.
October 9, 2020

Recommended

8 Things Men Should NEVER Do in the Workplace
careers

8 Things Men Should NEVER Do in the Workplace

The new book "Good Guys, How Men Can Be Better Allies for Women in the Workplace" has practical advice to help level the playing field, including a li…
October 8, 2020
A Tasty Break From the Pandemic
Business Costs & Regulation

A Tasty Break From the Pandemic

This Ohio bakery has found creative ways to stay in business—and even thrive.
October 1, 2020
Financial Advice for Worried Airline Pilots Right Now
careers

Financial Advice for Worried Airline Pilots Right Now

Furloughs, job cuts and early retirement are on the minds of many pilots. Now is the time for them to get their finances in order.
September 28, 2020
7 Foreign Countries Luring Americans to Work Abroad During the Pandemic
careers

7 Foreign Countries Luring Americans to Work Abroad During the Pandemic

Work remotely – really remotely – in these appealing destinations offering special visas for American workers.
September 18, 2020