October 01, 2024
The August jobs report pushed back concerns about recession that had been raised by a relatively weak July report, which had a 4.3 percent unemployment rate. Other data also indicate the economy is still experiencing healthy growth. Nonetheless, even with the slight improvement last month, unemployment at 4.2 percent is still 0.8 percentage points higher than its low in April of last year.
This matters most for workers facing discrimination in the labor market. The unemployment rate for Black workers was 6.1 percent last month. That is still relatively low by historical standards, but well above the 4.8 percent low hit last year. The unemployment rate for Hispanic workers was 5.5 percent in August compared to a low of 3.9 percent in 2023.
For these and other groups facing discrimination in the labor market, it makes a big difference if the unemployment rate is near its 3.4 percent low or drifts higher to 4.5 percent or even 5.0 percent. The biggest question in this report will be whether the July jump was an anomaly or indicates the future course for the unemployment rate.
Job Growth Should Remain Healthy
The economy added 142,000 jobs in August after an originally reported 114,000 (revised down to 89,000) jobs in July. This put the three-month average since June at 116,000. This is far slower than the pace of job growth we had been seeing earlier in the recovery, but it’s not clear that it is lower than a pace consistent with a stable unemployment rate.
In the last set of projections before the pandemic, the Congressional Budget Office (CBO) projected that we would be creating just 20,000 jobs a month in 2024. The reason is that this is the peak point for the retirement of the baby boom cohorts.
Immigration has changed the picture hugely, allowing for the rapid job growth of 2022-23. However, with border crossings having slowed sharply earlier in the year, it is not clear how many new immigrants will be taking jobs at this point.
Given other data indicating strong GDP growth, it seems likely that we will again see job growth close to the August pace. Also, new unemployment insurance claims have continued to be very low, so it is implausible that there has been a large surge in layoffs in September. This should mean unemployment will be little changed and perhaps edge downward.
Hours and Productivity
The revisions to GDP data reported last week, coupled with the preliminary revisions to the payroll employment data, imply that productivity growth has been substantially more rapid than previously reported. A simple calculation – subtracting the revised jobs number from total labor hours and adding GDP growth to the prior reported level – would raise average productivity growth since the pandemic from 1.6 percent to 2.0 percent.
The index of aggregate hours for July and August was only slightly above the second quarter average. Unless we see a big jump in hours in September, or an upward revision to the prior months’ data, we are likely looking at an annual rate of hours growth for the quarter of under 1.0 percent. With GDP likely to come in above 2.5 percent, this would translate into another quarter of strong productivity growth.
Wage Growth Likely to Remain Stable
The annualized rate of wage growth over three-month periods has been at or below 4.0 percent since the start of the year. This is certainly consistent with the Fed’s 2.0 percent inflation target, especially if we are seeing productivity growth close to 2.0 percent.
It also is worth noting that the GDP revisions showed a substantially higher profit share in GDP. In the most recent quarter, the profit share of corporate income was near its post-pandemic peak, more than 4.0 percentage points above the 2019 level.
This means that there is plenty of room for wages to grow at the expense of profits, rather than triggering inflation. This sort of reversal of the run-up in profit shares may require a tighter labor market than we now see, but it is important to recognize that more rapid wage growth need not translate directly into inflation.
Manufacturing Employment Likely to Edge Higher
The manufacturing sector lost 25,000 jobs in August, with almost half in the transportation sector. This drop was a sharp departure from a pattern where the sector had been largely treading water. Between January of 2023 and July 2024, manufacturing added a total of 9,000 jobs.
There is nothing obvious in the economy which would indicate a sudden reduction in the demand for manufactured goods, so it is likely that the August drop was at least partly anomalous and will be reversed. (The Boeing strike began too late in the month to affect the September jobs data.)
Construction and Health Care Continue to Add Jobs at a Healthy Pace
Construction added 34,000 jobs in August, driven in large part by the surge in factory construction. Lower interest rates are providing a boost to housing construction, although it may be too early to see much of an employment impact.
The health care sector added 30,900 jobs in August. While this number still puts it near the top in job creation, this pace is well below its 57,000 average for the last year. Slower job creation in the health care sector is a mixed story. These are mostly good-paying jobs, so we would want more of them. On the other hand, more employment in health care will mean higher health care costs.
Another Solid Jobs Report
There is every reason to expect that this report will again show a healthy labor market. The big questions will be the tea leaves for the future. The July jump in unemployment, following a 0.4 pp rise from January to June, raised concerns that we were not on a sustained upward path. If the rate drops again in September, or at least remains stable, there will be less basis for this concern.
The jobs number is a big guess. The big unknown will be the extent to which there are still a large number of recent immigrants entering the labor force. CBO was not wrong about the retirement of baby boomers – that is happening. With the employment-to-population ratio of prime age workers (ages 25 to 54) already at a 20-year high, there is little room for labor force growth from the native-born population, which means most job growth will depend on immigrants.
