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Job gains of 142,000 in August represent both a hiring slowdown and a return to normal for the labor market, after a surge in job creation over the past three years. Most of August’s gains occurred in the usually strong sectors of healthcare, leisure and hospitality, and local government. Construction showed a stronger gain than usual, but manufacturing counterbalanced that with a drop, as the sector continues to suffer. Temporary employment declined, continuing its more than two-year downtrend. These jobs are often in the manufacturing sector and tend to be cut first when demand for manufactured goods softens.
The jobs slowdown over the past five months will likely give the Federal Reserve the justification it needs to begin cutting short-term interest rates at its next policy meeting on September 18. Some market observers have said that the drop in job gains this year will cause the Fed to cut by a half percentage-point in September, but that seems unlikely. However, the Fed could make additional quarter-point cuts at its meetings on November 7 and December 18 if it feels the need to prop up the economy.
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The unemployment rate edged back down to 4.2% after a bump up in July most likely caused by Hurricane Beryl in Texas. It is slightly concerning that the rate did not return to its June level of 4.1%, suggesting a modest weakening in labor demand. However, no trend can yet be seen in weekly initial unemployment claims, which tend to be a leading indicator of shifts in unemployment.
Annual wage growth perked back up to 3.8% in August. Wage growth usually lags any slowdown in the labor market, but the declines in wage growth amid the labor market slowdown have been taking longer to develop than we expected. Look for pay raises to end the year at about a 3.6% annual rate. Wages of nonsupervisory employees are growing a bit faster, at 4.1%, and should end the year at a 3.8% pace.
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