• US adds 201,000 jobs in August

• Wages rose 0.4% mom, 2.9% yoy

• Unemployment stays at 18-year low

• Latest economic data keep Fed on track for September rate hike

US non-farm payrolls (NFP) rose 201,00 in August, slightly better than market expectations for 194,000 increase. Employment gains for July and June, meanwhile, were revised down by a combined 50,000 (July: from 157,000 to 147,000; June: from 248,000 to 208,000). The hiring trend over the past six months is still healthy at 192,000 and the economy has produced an average of 207,000 new jobs a month so far this year — faster than the pace of hiring in both 2017 and 2016.

The details across industries showed manufacturing payrolls fell by 3,000 in August, breaking an almost year-long streak of solid gains. Construction added 23,000 jobs. Service providers increased payrolls by 178,000 workers, a three-month high. Gains were led by education and health services at 53,000 jobs, professional and business services with 53,000 and wholesale trade at 22,400. Government payrolls decreased by 3,000. Private employment rose by 204,000, compared with a median estimate of 194,000.

The unemployment rate, meanwhile, was unchanged at 3.9%. The latest figure reflects a decrease of 46,000 unemployed people in August and a 423,000 drop in the number of people with jobs. That lowered the participation rate to 62.7% from 62.9% the prior month. The employment-population ratio, another broad measure of labor market health that central bankers like to watch, fell to 60.3% from 60.5%. Another measure showed diminishing labor-market slack. The underemployment rate (U-6), fell to 7.4%, the lowest since 2001, from 7.5%.

The biggest news in the August employment report was a sharp increase in pay. Average hourly earnings rose 0.4% mom following a 0.3% gain, while the yearly rate of pay increases climbed to 2.9% from 2.7%, marking the highest level since June 2009.

The unemployment rate remained 3.9%, near an 18-year low.

There was a bright spark in the closely watched average hourly earnings measure, which rose 0.4% mom in August. Growth in wages on a year-on-year basis accelerated to 2.9%.

Jobs data show Fed tightening is right course

Political intrigue and anxieties over trade did little to dent a 95-month streak of job creation as employers once again fattened their payrolls, and wages kicked up. The US job market continued to enjoy considerable momentum in August as employment for the month indicated a solid rebound in hiring. Thus, despite indications of the economy operating beyond capacity, and thus a shrinking pool of available workers to draw from, hiring remains surprisingly robust. Though the unemployment rate remained unchanged at 3.9%, it remains significantly below the Fed’s long-run expected range for unemployment of between 4.3% and 4.6%. The drop in the broader measure of unemployment, the socalled U-6 rate, to 7.4% from 7.5% provides some evidence that solid US growth is drawing more individuals back into the labour force.

The strength in labour markets contributed to the wage measure rising significantly to 2.9% yoy in August from 2.7% in July. The upward trend in wage growth has generally tracked the downward trend in the unemployment rate through all of the growth phase of the current business cycle. The pace of increase in wage growth does not as yet jeopardize the Fed’s 2.0% inflation target. However, the risk grows as this measure continues to trend higher and is thus expected to keep the Fed tightening policy. Our forecast assumes that the current fed funds range of 1.75% to 2.00% will rise a further 50bps by the end of this year. The next hike is expected later this month at the September 25-26 policy-setting FOMC meeting. Looking ahead, we will be watching to see if hotter wages in August a onemonth blip or the start of a long-awaited pick up in wage growth that could raise inflation pressures higher than we currently expect.

Source: BIMB Securities Research - 12 Sept 2018