WASHINGTON — Employers added a softer-than-expected 169,000 jobs in August and the unemployment rate dipped slightly to 7.3 percent, the government said Friday in a status-quo jobs report that showed the workforce participation rate at its lowest level in 35 years.
Mainstream economists had expected stronger hiring, given positive readings of other economic data such as surging car sales and brisk business in the broad services sector. Instead Friday brought a plain vanilla report from the Labor Department that featured a sharp revision to July’s hiring estimates, knocking the earlier number back by 58,000 jobs.
“The August jobs report was a bit of a disappointment, particularly given the string of better economic news in recent days,” said Mark Zandi, chief economist for forecaster Moody’s Analytics. “Looking through the zigs and zags in the data, it is ‘steady as she goes’ in the job market. Job growth in August isn’t much different than it’s been over more than two years.”
Stocks shrugged off the ho-hum report, initially opening up in a sign of how upside the financial world is today. Traders took the soft hiring numbers as a sign that the Federal Reserve might delay or soften its expected September tapering, or pullback, from unconventional support it’s been giving to the economy.
“It might be hard for the (Fed) to reach a taper decision based on these numbers. I have to think the probability of a delay in tapering just went up,” said Scott Anderson, chief economist for Bank of the West in San Francisco.
The Fed has been purchasing, at a pace of $85 billion a month, government and mortgage bonds in a bid to drive down lending rates in the economy and force risk taking by investors. They must seek better returns than they have been getting on bonds, thus juicing the stock market and commodities such as crude oil and a range of farm products. Fed Chairman Ben Bernanke, who is concluding his term, wants to begin weaning the economy off of this support before his successor takes over.
Already, rates on the 30-year fixed mortgage have risen sharply in recent months in response to the expected tapering, although they remain low by historic standards. It’s unclear how wary consumers and businesses will respond to higher borrowing costs after more than five years of record low rates.
Friday’s report showed no sign of an economy kicking into higher gear just as the Fed prepares to take its foot off the accelerator and Congress and the Obama administration, absent compromise, are just weeks away from a potential government shutdown and possible debt default.
“The moderate recovery continues,” said Anderson. “The unemployment rate dropped for the wrong reasons, household employment fell in August, and labor force participation slumped to 63.2 percent from 63.4 percent.”
The participation rate is derived from the number of people employed or seeking employment as a percentage of the civilian working-age population. At 63.2 percent, it is the lowest rate in 35 years.
The unemployment rate ticked down just a tenth of a percentage point in August, the lowest since December 2008 but still elevated. The White House saw larger significance in the number.
“The lingering elevation in the unemployment rate primarily reflects a large number of long-term unemployed (those unemployed for more than 27 weeks), while the share of the labor force that has been unemployed for less than 27 weeks has mostly returned to its average during the 2001-07 expansion period,” Jason Furman, the new head of the White House Council of Economic Advisers, said in a statement.
Within the jobs report, the signs are mixed. Private sector hiring was lower than the overall number, with private firms adding 152,000 jobs, the other 17,000 coming from the government sector. The employment numbers are derived from a survey of employers, while the unemployment rate comes from a survey of households. By this measure, more households are telling the government they are working than jobs being reported by employers.
The “payroll-adjusted measure of Household Employment actually surged 286,000 with the 12-month trend at 202,000,” wrote economist Neil Dutta of Renaissance Macro Research, in a note for investors. “Those not in the labor force but currently wanting a job fell to 2.6% of the population, the lowest since 2010. Thus, the drop in labor force participation does not appear to be for cyclical reasons.”
If it isn’t the business cycle trimming the participation rate, it likely means that older workers are retiring earlier than thought, or have given up looking for work and exited the workforce.
In an encouraging sign, wages rose slightly last month and the workweek expanded a bit.
“Hourly earnings and weekly hours were solid in August, which should support solid income growth and spending on the month,” said Anderson, noting wages have risen 2.5 percent over the past 12 months.
And among the major economic sectors, only finance showed a drop in employment, while most others expanded a continued modest pace. Retailers hired the most in August, adding 44,000 jobs.
“While the jobs numbers weren’t as strong as anticipated, they indicate a more positive trend,” Jack Kleinhenz, chief economist for the National Retail Federation, said in a statement. “We are expecting further signs of strengthening in the second half of the year. Retailers are making headway but challenges remain.”
Manufacturers added 14,000 jobs in August, growth but at a real sluggish level for a sector that’s so labor-intensive.
“The underlying story here is that manufacturing employment continues to growing at a disappointing pace. The sector lost workers for five straight months from March to July, with 39,000 fewer employees during that time,” Chad Moutray, chief economist for the National Association of Manufacturers, wrote in his blog Shopfloor.org. “Over the course of the past 12 months, the sector has added just 20,000 additional workers, or less than 1 percent of the 2.2 million nonfarm payroll workers hired during that time.”
In a troubling sign, the construction sector was unchanged in August, potentially pointing to a slowdown in what had been a recovery in homebuilding and sales of existing homes.
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