The August jobs report doesn’t change the picture of a tight labor market that continues to get even tighter. And it doesn’t affect the outlook for the FOMC, which we expect to raise rates at a pace of once per quarter until the funds rate is around its estimated neutral level.
Payrolls posted a strong 201K gain in August, but downward revisions to the previous two months totaled 50K. While the three-month average gain declined to 185K, lower than recent readings, which have consistently been about 200Kor slightly higher, it’s too early to say there’s been a moderation in the underlying pace of payroll gains. That pace is still strong and more than sufficient for the unemployment rate to continue declining. Average hourly earnings increased a robust 0.37% in August, and the 12-month change increased to 2.9%, up from 2.6% a year ago. This will go some way toward resolving a source of tension for FOMC policymakers, who have said they would have expected somewhat firmer wage gains to accompany such a tight labor market. However, weighed against the full range of wage data, the marginal impact of this firmer reading is slight.
The unemployment rate remained at 3.9% despite a two-tenths decline in the participation rate, as both employment and the labor force declined similar amounts. The broader U-6 rate declined another tenth. These results from the household survey are a bit soft, but no cause for concern. The participation rate continues to move within a narrow band, as it has for the last couple of years. The unemployment rate is low and still declining, though at a slower pace since mid-2017.