By Thomas Cooley and Peter Rupert
The BLS announced an increase in payroll employment of 130,000. The private sector added only 96,000 jobs. The government sector increased its payroll by 34,000, due to the temporary hiring of census workers for the upcoming 2020 census. June and July payrolls were revised down, -15,000 and -5,000, respectively. While the headline number undershot expectations (around the 150k mark) digging into the report seems to show more strength than weakness.
This is the seventh straight month of decline in retail trade employment, falling 11,100 and the sector has shed 83,700 jobs since February. There were also some small scattered losses: mining and logging down 5,000; utilities down 1,400 and a couple others even smaller. Health care and social assistance increased 36,800.
On the positive side, average weekly hours increased from 34.3 to 34.4. Average hourly earnings rose $0.11 to $28.11. Moreover, earnings have been trending up and with inflation at bay, real earnings have also been rising.
The household survey also had some signs of strength. The labor force increased 571,000 and the number employed rose by 590,000. The number unemployed fell by 19,000. Overall, the unemployment rate fell from 3.71% to 3.69%.
The Jobs Opening and Labor Turnover Survey continues to show strength in that there are still more job openings that unemployed persons.
The Federal Reserve pays a lot of attention to the employment report. They have emphasized repeatedly over the past year that policy will be “data driven.” How then should this report impact policy? There is now talk about another interest rate cut at the Fed’s next meeting in September. We see little in this employment report that would suggest such a cut. Other data also do not really point to a cut. The last GDP report was on the strong side, consumption growth was up 4.7%, for example. Yesterday’s productivity report, that showed output per hour up 2.3%, also provides little support for a cut.
What is seemingly the principal motivation for a cut in interest rates is uncertainty over the effects of the trade war with China on GDP growth. Indeed a recent article from several Fed economists points to a reduction in GDP of nearly 1.0% due to trade uncertainty. Is that large enough to call for a “data driven” cut in rates? Why is the Federal Funds rate the right instrument for this shock? There is little evidence that firms are unable or unwilling to borrow so what problem will a rate cut address? It feels like it is time for the Fed to offer some more clarity on what it sees in the data.
