Job growth slowed in August, according to government numbers released Friday, while other economic reports showed manufacturing hitting a six-year high as total construction spending unexpectedly slowed – and consumers are in the best mood since 2000.
Employers added 156,000 non-farm jobs in August, according to the Labor Department, less than analysts were expecting, while trucking payrolls fell. The nation’s unemployment rate ticked upward from to 4.4% from the 16-year low of 4.3% the month before.
The department also revised downward its estimate of how many jobs were created in June and July by a combined total of 41,000.
Hiring has slowed from higher levels earlier in the year, but is better than it was in May and March, when 145,000 and 50,000 jobs were added, respectively. Employment growth has averaged 176,000 per month thus far this year, about in line with the average monthly gain of 187,000 in 2016.
The for-hire trucking industry shed 1,600 jobs in August, while the wider transportation and warehousing sector added 1,900, due to big gains in employment in the support activities for transportation, and in the couriers and messengers categories where e-commerce and last-mile delivery growth are having an impact.
Job gains occurred in manufacturing, construction, professional and technical services, health care, and mining. Manufacturing employment rose by 36,000 in August and has added a total 155,000 jobs since a recent employment low in November 2016.
While the latest number of job additions is a bit disappointing, what’s likely to get the attention of Federal Reserve policy makers is the lack of wage growth in the report, according to Nathan Janzen, senior economist at RBC Economic Research.
“Despite ostensibly tighter labor markets, wage growth has been stuck at 2.5% over the last five months, similar to the 2.6% average increase last year,” he said. “The lack of further acceleration in wages coupled with a lack of inflation pressures continues to provide the Fed with flexibility around the pace of monetary policy tightening [interest rate hikes], despite what historically would look like relatively tight labor markets.”
Not everyone agrees with that assessment. Sal Guatieri, senior economist at BMO Financial Group, noted that despite a lack of wage pressure the central bank is expected to raise interest rates in December.
“It would likely take clearer signs of labor market softening, or political turbulence, to derail a year-end rate hike, given recent signs of momentum in the economy and a view that labor shortages will eventually trigger some upturn in inflation,” he said.
Manufacturing at Highest Level Since 2011
A separate report on the nation’s manufacturing sector for August showed a pickup in activity from the month before. The monthly survey of purchasing managers by the Institute for Supply Management (ISM), a gauge of economic activity in manufacturing, increased to a level of 58.8 from 56.3 in July. This marked the highest level since April 2011 and beat analysts’ expectations, according to MarketWatch.
A reading over 50 indicates expansion, while below 50 signals contraction, in manufacturing, which makes up about 12% of the U.S. economy.
The New Orders Index registered 60.3, a drop of 0.1 point from the July, while the Production Index registered 61, a 0.4 point increase. The Employment Index registered 59.9, an increase of 4.7 points from the July report.
Of the 18 manufacturing industries surveyed, 14 reported growth in August.
“Comments from the panel reflect expanding business conditions, with new orders, production, employment, backlog and exports all growing in August, as well as supplier deliveries slowing [but] improving and inventories increasing during the period,” said Timothy R. Fiore, chairman of the ISM Manufacturing Business Survey Committee.
A similar survey by financial information services provider IHS Markit was less glowing, but still indicated “an ongoing improvement in operating conditions across the U.S. manufacturing sector.”
Construction Spending Drop Surprises
Meanwhile, construction spending in the U.S. in July dropped unexpectedly, falling 0.6% from June to a seasonally adjusted annual rate of $1,211.5 billion – a nine-month low, according to a Commerce Department report.
The performance follows a downwardly revised June decline of 1.4% from May.
However, when July is compared to the same time a year ago, activity increased 1.8%. The pace during the first seven months of 2017 is 4.7% better than it was for the same time in 2016.
At first glance the report may seem a bit depressing, but there’s some underlying strength in the report, according to analysts at Econoday, particularly in residential building, and more specifically single-family home construction.
“The real weakness in the report is on the nonresidential side,” Econoday said. “Though building permits have been flat, the residential numbers in this report are solid. And strength for construction payrolls in this morning's employment report might be hinting at better results for construction spending in the August report.”
Consumer Sentiment Remains Very Bright
Lastly, before Labor Day weekend began, a survey showed consumer confidence in August remained at a very favorable level, despite slipping from a preliminary look mid-month.
The University of Michigan Survey of Consumers made both month-over-month and year-over-year gains in August. In fact the index has been higher during the first eight months of 2017 than in any year since 2000, which was the peak year of the longest expansion in U.S. history.
The renewed strength in 2017 is mainly due to consumers' favorable assessments of their own financial situations, according to Richard Curtin, the survey’s chief economist.
“Lows in unemployment, inflation, and interest rates, as well as renewed gains in the value of their homes and stock portfolios, pushed personal financial evaluations to near all-time peaks,” he said.
He noted that when asked about news of recent developments, surprisingly few consumers made any reference to Charlottesville, North Korea, or Harvey, although too few interviews were conducted to fully assess the storm's ultimate impact.
“Harvey may diminish the third quarter pace of economic growth, and higher gas prices will directly impact consumers,” Curtin said. “Prior to the storm, consumers anticipated no increase in gas prices in the year ahead. Given the current resilience of consumers, temporary increases in gas prices as well as a brief period of weakness in economic growth and employment are unlikely to derail confidence. Nonetheless, all of these events are more likely to increase precautionary motives and to slightly temper spending trends.”