Once again, the American economy has managed to frustrate the optimists.þþAfter a series of positive economic reports in recent weeks, the Labor Department said Friday that hiring in August sank to its slowest pace since December, with employers adding 142,000 jobs last month.þþThe vast majority of economists had been looking for a gain of at least 200,000 in payrolls, coming off healthy indicators for durable goods orders, construction activity and manufacturing in July and August.þþThe unemployment rate did fall by 0.1 percentage point to 6.1 percent last month, but that was because more people dropped out of the work force rather than found jobs.þþ“It presents a reality check versus other data, which showed more significant economic momentum heading into the third quarter,” said Michael Gapen, senior United States economist at Barclays.þþAlthough the rate of economic growth rebounded to 4.2 percent in the second quarter after a contraction early in the year, Mr. Gapen said the latest jobs data suggested the economy was settling into a more moderate pace of growth of around 2.5 percent for the remainder of 2014.þþAs a result, he said, the Federal Reserve is likely to stick to its plan to raise short-term interest rates beginning in the middle of 2015, rather than move that timetable up, as some on Wall Street have speculated recently.þþFor anyone looking for a shift in tone when Fed policy makers meet this month, “this throws cold water on that,” Mr. Gapen said.þþOther economists speculated that the tepid data in August represented something of a timeout after six straight months of payroll gains of more than 200,000, the best run since before the recession. In addition, the broadest measure of unemployment, which includes people who are working part-time but want full-time positions, actually fell slightly to 12 percent from 12.2 percent in July. A year ago, this yardstick stood at 13.6 percent.þþ“This looks like a breather, rather than a fundamental downshift,” said Omair Sharif, senior United States economist at RBS.þþThe proportion of Americans working fell slightly to 62.8 percent, reversing a slight gain in July, and returning the participation ratio to multidecade lows. While the downward trend in recent years can be attributed in part to retiring baby boomers, many economists believe at least half the drop is because Americans have simply given up the job hunt and left the labor force entirely.þþEconomists, along with politicians, have been hoping to see a significant rebound in the participation rate as unemployment drops and hiring picks up, but progress on this front has failed to materialize.þþGovernment statisticians also revised on Friday their estimates for hiring in June and July, subtracting 28,000 jobs.þþAlthought the slackening in job creation last month was across the board, some sectors fared much better than others, with services outperforming blue-collar sectors like manufacturing, mining and logging and construction. The health care sector was a standout, adding nearly 43,000 positions, a sign President Obama’s signature health care expansion is fueling added demand from new patients.þþOn the other hand, the factory sector, which added more than 50,000 positions in May, June and July, was unchanged in August. Similarly, retail employment shrank by 8,400 last month, following a gain of 85,000 jobs in the prior three months.þþThe August data highlights just how unpredictable the monthly jobs report from the Labor Department can be. Some experts cautioned that in a a workforce of 156 million, a swing of less than 100,000 jobs in one month tells little. What’s more, after strong month-to-month gains since February, including a 304,000 pop in April and a 267,000 jump, what economists term a “mean-reversion” was practically inevitable.þþ“Once again, this tells us we are not great forecasters of a single number,” said Tara M. Sinclair, a professor of economics at George Washington University and an economist at Indeed.com, one of the nation’s largest sites for job postings. The three-month and six-month trends look better, she added, with a 226,000 average monthly gain from March through August.þþMs. Sinclair said that one reason August is especially tricky for statisticans and economists is because a smaller proportion of people respond to government data-collectors during the month, as millions of people take their summer break. Substantial revisions, in either direction, are likely down the road.þþIndeed, economists at Bank of America Merrill Lynch said that August payroll growth had been revised upward in 12 of the last 15 years by an average of 31,000. “The report was clearly disappointing and contrasts with the otherwise strong economic data we have seen recently,” the bank said in a note to clients. “We advise not overreacting given the volatility of nonfarm payrolls and possibility of an upward revision.”þþFor the vast majority of Americans who are employed, another lingering challenge has been very slow wage growth since the current recovery began five years ago. In August, average hourly earnings increased 0.2 percentage point, while the average hourly workweek was unchanged at 34.5.þþAt the Fed, policy makers have been watching for improvement in the level of unemployment, as well as the participation rate and wage growth, in order to gauge when to begin the long-awaited process of gradually increasing short-term interest rates from near zero.þþThere have been several positive economic reports this week, but the August jobs data is likely to take pressure off the Fed to move more quickly than expected on rates, as Mr. Gapen of Barclays suggested.þþOn Thursday, the private Institute for Supply Management said its services index for August hit a six-year high, and the Commerce Department reported that the trade deficit in July unexpectedly shrank as exports rose.þþThe August pace of auto sales, another closely watched bellwether for the overall economy, was the best since January 2006, well before the recession brought the domestic car industry to its knees and pushed General Motors into bankruptcy.þþ
Source: NY Times
