COMMENTARY: Jobs market continued to strengthen in August

Gus Faucher

By Gus Faucher, PNC Bank Chief Economist

COLUMBUS, Ohio (Sept. 7, 2018) – The U.S. economy added 201,000 jobs in August, above the consensus expectation of 190,000 and very close to PNC’s forecast of 200,000.
• Big increases in education/healthcare, business/professional services, leisure/hospitality services, and construction.
• Except for May, this is the lowest the unemployment rate has been since late 2001.
• Average hourly earnings rose 0.4 percent in August from July, and were up 2.9 percent from one year earlier, the fastest pace since June 2009.
• The unemployment rate will fall to about 3.5 percent by the beginning of next year, although job growth will slow somewhat as businesses find it more and more difficult to hire.

The U.S. economy added 201,000 jobs in August, above the consensus expectation of 190,000 and very close to PNC’s forecast of 200,000. So far this year job growth has averaged 207,000 per month, well above last year’s pace of 182,000. There was a combined downward revision to job growth in June and July of 50,000, but that is not a concern; job growth over the past three months has averaged a very solid 185,000.

Private-sector employment rose by 204,000 in August, with job gains in most industries. There were big increases in education/healthcare, business/professional services, leisure/hospitality services, and construction. There were small job losses in manufacturing and retailing.

The unemployment rate held steady in August at 3.9 percent; except for May, this is the lowest the unemployment rate has been since late 2001. Both of the number of people employed in the household survey (different from the survey of employers) and in the labor force fell in August, but these numbers are volatile from month to month and the trends are good.

Average hourly earnings rose 0.4 percent in August from July, and were up 2.9 percent from one year earlier, the fastest pace since June 2009, when the Great Recession was starting to decimate the labor market. As the labor market tightens businesses are raising pay to attract new workers and retain their current ones.

Job growth picked up in August after a bit slower growth in July (147,000, revised down from 157,000). The unemployment rate held steady at below 4 percent. The U.S. economy is now at full employment, where everyone who wants a job and has the skills needed in the labor force can easily find one.

The labor market will continue to improve through the rest of this year and into 2019. The unemployment rate will fall to about 3.5 percent by the beginning of next year, although job growth will slow somewhat as businesses find it more and more difficult to hire. Wage growth will accelerate further as firms raise pay to recruit workers. Stronger wage growth will bolster consumer spending into 2019.

Today’s job report reinforces PNC’s view that the Federal Open Market Committee will raise the federal funds rate by 0.25 percentage point when it next meets on September 25 and 26, to a range of 2.00 to 2.25 percent. By gradually raising interest rates the FOMC is trying to make sure that the labor market doesn’t overheat; if it did, that would lead to wage pressures that would push inflation well past the committee’s 2 percent objective.

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