Weak August hiring reported by the government Friday was an important reminder that recent economic improvement notwithstanding, the U.S. economy continues to face numerous growth challenges.
Mainstream economists had projected hiring in the range of 225,000 or higher. Instead, the Labor Department said employers added just 142,000 jobs in August, the weakest showing this year.
The unemployment rate was essentially flat in August, the Bureau of Labor Statistics said, dipping a tenth of a percentage point to 6.1 percent.
“The job numbers were a disappointment but are an aberration and not a sign the economy is faltering,” said Mark Zandi, chief economist for forecaster Moody’s Analytics. “Underlying job growth, abstracting from the ups and downs in the data, remains over 200,000 per month.”
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“Overall, today’s jobs numbers were frustrating, particularly given the strength seen in a host of other data points,” said Chad Moutray, chief economist for the National Association of Manufacturers, whose sector was largely flat in August. “My view is that hiring will pick up in the coming months, with accelerated levels of new orders and production leading to more employment growth.”
Given that the economic growth rate was recently revised upward to 4.2 percent for the period between April and June, the presumption was that hiring would accelerate, too. Instead, hiring as measured by the government underwhelmed, especially because a private-sector measure of payrolls released Thursday showed 204,000 jobs last month.
“Payrolls: signal or headfake?” asked the headline of an investment report Friday by Bank of America Merrill Lynch. In the report, global economist Ethan Harris cautioned “not overreacting given the volatility of non-farm payrolls and possibility of an upward revision _ August payroll growth has been revised up in 12 of the last 15 years by an average of 31,000.”
That may be, but Friday’s revision went in the other direction. July’s scorching 298,000 jobs estimate was revised downward to 267,000, or 31,000 fewer jobs than first thought.
The broader hiring trend remains on an upward slope. Over the past 12 months, monthly hiring has averaged 212,000 new jobs, and economists expect a rebound in months ahead. Over the past three months, however, it’s slowed to an average of 207,000.
“Job growth will rebound next month back to over 200,000,” predicted Zandi. “All the trend lines are in place for the economy to be back to full employment by late 2016.”
If he’s right, the economy won’t return to its full potential for more than a year. It underscores how the recovery from deep financial crisis continues to come in fits and starts as the economy climbs back to normalcy.
Financial markets largely shrugged off Friday’s numbers because consumer and business confidence measures are up, auto sales are nearing record proportions and construction spending is up sharply.
Yet the size of Friday’s miss was unwelcome, said Scott Anderson, chief economist of Bank of the West in San Francisco, noting that “the data do reinforce the still fragile, stop and start nature of our labor market recovery. Given the downside risks coming from abroad, it probably pays to remain cautious.”
The hard-hit construction sector added 20,000 jobs in August, continuing an eight-month hiring streak. Retailers lost 8,400 jobs last month, and after heating up earlier in the year, the leisure and hospitality sector added a modest 15,000 jobs.
The health care sector has underperformed for much of the year but added a solid 34,000 jobs last month. The better-paying professional and business services sector, reflecting white-collar jobs, led all others with 47,000. That is slower than previous months.
Deeper in the numbers there were some signs of continued healing. The number of long-term unemployed fell by almost 200,000 in August and has fallen steadily in recent months.
But the number of working-age adults in the labor force remains at near-record lows, and that partly reflects people who’ve become discouraged and simply given up looking for work.
By this point in an economic recovery, many were expected to rejoin the labor force to begin looking for work as hiring picked up. It’s happening, but at an anemic rate.
“Of greater concern than the headline number is this month’s growth in the labor force, which fell by 64,000, and stands only 524,000 ahead of August 2013,” Doug Handler, chief U.S. economist for forecaster IHS Global Insight, wrote in a research note. “The number of teenagers in the labor force (16- to 19-year-olds) fell by 95,000 in August, more than accounting for the overall decline. Still, labor force growth among those who are at least 25 years old was poor.”