August jobs report falls short of expectations

Sep 1, 2017, 13:18 PM by Jeff Havsy
  • Headline: U.S. employers added 156,000 jobs in August, which was below the consensus forecast of 180,000. Revisions to the June and July reports resulted in a net loss of 41,000 jobs. Job gains have averaged 185,000 for the past three months, a drop of 10,000 compared with last month’s rolling average. For the trailing 12 months, job gains have averaged 175,000. The unemployment rate ticked up slightly to 4.4%. The unemployment rate has bounced between 4.3% and 4.5% for the past six months. The labor force participation rate remained unchanged at 62.9%.
  • Executive Summary: The economy continues to add jobs at a healthy pace and remains in good shape, but the annual rate of job growth is starting to slow slightly. The economy has added 176,000 jobs per month so far in 2017, compared with 187,000 per month for all of 2016. Despite the tight labor market, wage growth has not accelerated, which is a bit surprising. Wages grew by 2.5% in August—the same rate as July and for most of the past year.
  • Hurricane Harvey: Knowing the full impact of the hurricane is still weeks away, as many areas are still underwater. The short-term impact is likely higher inflation due to gas shortages and other logistical issues. Over the longer term, the Texas and Louisiana economy may receive a boost as rebuilding takes place. Unlike New Orleans that saw the evacuation of a large share of its population after Hurricane Katrina, Houston is a much bigger city with limited dependence on tourism and its residents weren’t forced to evacuate. The area should bounce back much quicker. The pace of the recovery will partially depend on the federal government’s aid response, reportedly at around $125 billion.
  • Labor Force Participation: The labor force participation rate was flat at 62.9%. While the monthly number is volatile, it has remained between 62.4% and 63.0% since August 2013. Such stability is encouraging given that the aging workforce is a headwind to increased participation, but without a significant increase in labor availability the pace of hiring will be limited.
  • Wage Inflation: Wage growth appears stuck in second gear with year-over-year growth of 2.5% in August—the same as in July and in most of the past 12 months. August’s wages rose 3 cents to $26.39 after rising 9 cents in July.
  • Job Growth Outlook: We expect the rate of gains to continue to moderate for the foreseeable future as employers find it difficult to fill skilled positions from outside the current workforce. The trailing 12-month job growth number a year ago was 207,000, compared with the current 175,000 monthly average. Our forecast for the remainder of the year is for monthly job gains to fall below 170,000.
  • CRE Implications:
    • Retail: Employers added just 800 jobs in August—the third consecutive month of positive growth. Once again some of the biggest gains were in auto and non-store retail. The leisure & hospitality sector added 4,000 jobs after a huge jump in July. Apparel employment dropped another 2,400 for the month and is down by more 17,000 compared with last year, likely due to the impact of internet sales.
    • Industrial: Preliminary figures indicate that growth in transportation & warehousing employment remained positive. Rail transportation and transit & ground transportation both lost employment. Support activities for transportation rose by 2,100 jobs and have added 10,000 jobs since a year ago. This is a small sub-segment of transportation, but likely to grow as technology and AI improve logistics and the ability to move people, equipment and goods.
    • Office: Professional & business services added 40,000 jobs in August and more than 600,000 since a year ago. Administrative and support services accounted for more than 15,000 of those jobs, while professional and technical services added more than 22,000. Financial activities added 10,000 jobs in August, the same pace as July. That sector is up 150,000 in the past year. In contrast, information has lost 60,000 jobs over the past year and shed jobs again last month. Losses were across all segments, with motion picture & sound recording leading the loss.
    • Construction: Construction remains strong with 28,000 jobs added in August and more than 200,000 over the past year. Growth was strong in all subsectors, with particular strength in single-family housing, but the tight labor market makes growth in the construction sector volatile.


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