Payrolls fall short

September 6, 2024

Payroll employment rose by 142,000 in August, after rising a downwardly revised 89,000 in July. That brings the three-month moving average to 116,000, down from 141,000 last month and close to the margin of error for the series; plus or minus 100,000 jobs is not significantly different from zero on the establishment survey.

Hiring in the public sector rose by 24,000. Gains were dominated by hiring at the local level outside of education.  Job openings for teachers fell at the end of July as state and local government revenues fell short of expectations in fiscal 2024. Fiscal 2025 started for most states over the summer.

Private sector hires were dominated by healthcare and social assistance and leisure and hospitality. Those three sectors alone accounted for nearly 80% of total job gains in August. That is up from a little north of 70% over the last year. However, job openings in all three sectors dropped at the end of July. Only healthcare and social assistance have job openings that are still well above February 2020 levels, which suggests additional weakness as we move into the fall.

Professional and business services edged up slightly, but temporary hires continued to drop. Information, largely in tech, shed jobs. The sector has posted losses in four of the last five months; the fifth month was flat. Retailers shed jobs as discounting picked up and consumers became more discerning. That is a red flag for the Federal Reserve, as it was hoping to keep discounting going without triggering a pickup in layoffs.

Transportation and warehousing added jobs. That is a sector that was hit hard by layoffs earlier in the year and appears to be showing new signs of life, a much-needed shift to keep the labor market going. The stockpiling as producers scramble to get imports prior to potential dock strikes on the East Coast on October 1 is buoying those gains. The ports on the East Coast account for more than 40% of shipping into the US.

Construction employment rose 34,000, driven by nonresidential specialty contractors and heavy and civil engineering. Those gains are being driven by the CHIPS Act, construction of new computer chip plants and earlier funds available for infrastructure. 

Manufacturing employment fell by 24,000, reflecting the weakness we have seen in the heavy manufacturing sector. The losses were concentrated in transportation, about half in the vehicle sector.

Average hourly earnings in the private sector rebounded 0.4% in August, double the subdued 0.2% pace of July. That translates to a 3.8% increase from a year ago, which is an improvement from the 3.6% pace in July. The quarterly average is expected to be the weakest since the second quarter of 2021. Hours worked rebounded slightly as workers returned following disruptions due to Hurricane Beryl. A record number of workers were idled due to power outages and flooding following the storm.

Advertisements for wage gains, according to job posting sites, suggest more cooling in wages ahead. Anecdotal reports suggest that entry-level workers are now seeing a cut in pay. Productivity growth has picked up significantly, which means that workers should be able to retain some of the gains we have seen without crimping profit margins.

Separately, the unemployment rate edged down to 4.2% in August from 4.3% July. The “Sahm Rule,” an early recession indicator, which was triggered in July, remained in the red for August. Claudia Sahm has warned that “rules were meant to be broken,” including her own, as little about the post-pandemic economy follows historic norms. Still, the ice under the labor market is thinning.

The participation rate remained unchanged and the ranks of the unemployed fell due to a drop in temporary layoffs. Much of that was due to disruptions triggered by Hurricane Beryl in July. However, a sharp drop in prime-age participation by men was offset by an increase in women. The largest gains in participation occurred in those over 55.  

Those forced to take part-time instead of full-time for economic reasons reached the highest level since May 2021.  The number of those accepting part-time for noneconomic reasons also hit the highest point since May 2024 and is running well above where we were prior to the pandemic. Working parents, largely women, are included in those figures. The ranks of those who have been forced to scale back their hours worked due to childcare problems tied the record hit in August 2020. Hourly women workers are being hit the hardest by childcare problems.

The ranks of those out on vacation in August hit the lowest level for the month since August 2020. That goes back to 1976. Much of the travel we saw this year was front-loaded into the spring and early summer. Travel abroad was particularly strong but that is considered an import. Those shifts will place a drag on hiring in the leisure and hospitality sector going forward. September is a large month for layoffs as summer hires are let go. Revenge travel is not what it once was.

Multiple job holders lost a little ground, largely due to people who work two full-time jobs. That is another sign of economic weakness, as it suggests that employers are cracking down on those who have more than one full-time job. 

Payroll gains are slowing, while the ranks of those forced to accept part-time for economic reasons are rising. The tick down in the unemployment rate is welcome but not enough of an improvement to feel the labor market is on firm footing. The tailwind from the big three sectors driving gains is also abating, which begs the question of where the strength will come from as we move into fall and winter.

We expect the debate over a half percentage point cut in rates to be heated at the Federal Reserve meeting in mid-September. Fed Chairman Jay Powell has made it clear he would be open to a half percentage point cut, while his colleagues are still waffling on a quarter point. We are betting Powell will win that battle but not without seeing dissent in the vote.