August Jobs Numbers Likely to Keep Fed at Bay

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. The U.S. economy added 151,000 jobs in August. I'm here with Tim Strauts, he's a senior markets research analyst, for his take on this report and what it could mean for the Fed. 

Tim, thanks for joining me.

Tim Strauts: Thanks for having me.

Glaser: So 151,000--below consensus, but not the disaster that we've seen in some previous Augusts. What's your general take on this number?

Strauts: Yeah, the consensus was about a 180,000 jobs, and it came in below that. I mean, but that's well within the range of kind of plus or minus you'd expect. It's a disappointing report, definitely for the Federal Reserve, which is kind of looking to this number to make the decision about a September rate rise, but you know, all in all, kind of middling to below-average report.

Glaser: So, looking at some of the commentary around this number so far this morning, you know, some people are saying, OK, absolutely this means the Fed can't raise rates in September. You know, maybe we're looking at December. Others say, well it's kind of neutral, it was a fine report, and you know, they're going to be open to it. Where do you think that, how this is being received at the Central Bank?

Strauts: Well, definitely the Fed in the Jackson Hole speeches has definitely been looking to this report to kind of make their case, because the last two months were very good with over 250,000 jobs in June and July, and if this number came in at 250,000 or higher that really would help them in making the case for a September rate rise. This kind of changes the situation now. They still could raise, but they won't have the cover of a really good jobs number to do it, so I think other factors will kind of play into the decision. But unfortunately some of the other economic numbers really haven't been really strong the way the jobs number has been in June and July. So I think it kind of lowers the expectations for a rate increase, but anything could happen.

Glaser: Taking a deeper look at these numbers. Where were jobs added in the month?

Strauts: Yeah, the best-performing category was food services and drinking places, plus 34,000. That's a very good number, but unfortunately it's one of the worst-paying categories. And then looking at healthcare, which has been averaging over 39,000 over the last 12 months, it only came in at positive 14,000. So we didn't see the growth in the high-performing categories and saw the growth in the lower-performing categories.

Glaser: We've been looking at construction, manufacturing for a while to see what would happen there. Was that changed very much in August?

Strauts: No, construction, manufacturing, and government were little changed, so we didn't get anything there.

Glaser: So, let's take a look at the unemployment rate. That was also unchanged. Is this just a matter of more people coming into the workforce? Is it just population growth? Why isn't that number budging?

Strauts: Well, I mean, we say that, you know, you need about 100,000 new jobs just to kind of keep the status quo, and we got a 151,000, and the labor force participation rate was also unchanged, so it makes sense that you'd see an unchanged unemployment rate.

Glaser: Finally, you mentioned that we were adding some jobs in some less high-paying sectors. Did that kind of weigh on the wage data?

Strauts: Yeah. Average hourly earnings rose $0.03, versus last month they rose $0.08, the $0.03 raise raised it to $25.73, which kind of lowered the growth rate over the last year to 2.4%. It was 2.6% last month.

Glaser: So deceleration there. Tim, I really appreciate your taking this report this morning.

Strauts: Thank you.

Glaser: For Morningstar, I'm Jeremy Glaser. Thanks for watching.