Nonfarm payrolls rose 142,000 in August after a sharp net downward revision of 86,000 for July and June. The August increase is below the consensus of 160,000 in the Econoday survey of forecasters. The unemployment rate fell a tenth to 4.2 percent in August and matches the survey consensus. Taken together, the picture is one of ongoing deceleration in hiring but without an acceleration in layoffs.

The average monthly payroll increase in the first quarter 2024 was 267,000, 147,000 in the second quarter, and 116,000 for the third quarter to-date. Fed policymakers will find sufficient evidence in this trend to support cutting rates at the September 17-18 FOMC meeting. Labor supply is now back in balance and the job market is performing consistent with mildly expansionary conditions.

Private nonfarm payrolls rose 118,000 in August and government payrolls were up 24,000. Job gains and losses by industry have few sizeable changes, although gains more than offset losses. Manufacturing is an exception with a sharp 24,000 decrease while construction is an exception on the upside, jumping 34,000. Construction businesses remain on the hunt for workers with the right skills and experience. New residential construction may have been soft in recent months, but home renovation and repair is still active. While commercial building construction may be weak, conversion of unused office space is common and businesses are repairing and upgrading current properties. Government job gains reflect 22,000 new hires in local government.

Average hourly earnings rose 0.4 percent month-over-month in August and were up 3.8 percent year-over-year. While increases in wages have cooled substantially since the peaks in 2022, they are still above the current pace of inflation. The workweek was little changed at 34.3 in August, up 0.1 hour from the prior month.

Turning to the household survey, the labor force is still growing with the number of employed up 168,000 and unemployed down 48,000. However, the U-6 rate the broadest measure of unemployment is up a tenth to 7.9 percent in August, the highest since 8.1 percent in October 2021. It appears that workers well-connected to the labor force are able to find work while those who have more trouble finding work for any of a variety of reasons are facing greater challenges.

The labor force participation rate held steady at 62.7 percent, holding at the highest levels since 62.8 percent in November 2023.

More people are working part-time for economic reasons with an increase of 264,000 to 4.830 million in August. Job losers were down 162,000 to 3.338 million in August, while those voluntarily leaving jobs were 10,000 to 845,000.

A 160,000 rise is the call for nonfarm payroll growth in August versus July's much lower-than-expected 114,000 rise. Average hourly earnings in August are expected to rise 0.3 percent on the month for a year-over-year rate of 3.7 percent; these would compare with July's rates of 0.2 percent on the month and 3.6 percent on the year. August's unemployment rate is expected to slip 1 tenth to 4.2 percent after jumping 2 tenths in July.

The most closely watched of all economic indicators, the employment situation is a set of monthly labor market indicators based on two separate reports: the establishment survey which tracks 650,000 worksites and offers the nonfarm payroll and average hourly earnings headlines and the household survey which interviews 60,000 households and generates the unemployment rate.

Nonfarm payrolls track the number of part-time and full-time employees in both business and government. Average hourly earnings track employee pay while the average workweek, also part of the establishment survey, tracks the number of hours worked. The report's private payroll measure excludes government workers.

The unemployment rate measures the number of unemployed as a percentage of the labor force. In order to be counted as unemployed, one must be actively looking for work. Other commonly known data from the household survey include the labor supply and discouraged workers.

If ever there was an economic report that can move the markets, this is it! The anticipation on Wall Street each month is palpable, the reactions can be dramatic, and the information for investors is invaluable. By digging just a little deeper than the headline unemployment rate, investors can take more strategic control of their portfolio and even take advantage of unique investment opportunities that often arise in the days surrounding this report.

The employment data give the most comprehensive report on how many people are looking for jobs, how many have them, what they're getting paid and how many hours they are working. These numbers are the best way to gauge the current state as well as the future direction of the economy. Nonfarm payrolls are categorized by sectors. This sector data can go a long way in helping investors determine in which economic sectors they intend to invest.

The employment statistics also provide insight on wage trends, and wage inflation is high on the list of opponents of easy monetary policy. Fed officials constantly monitor this data watching for even the smallest signs of potential inflationary pressures, even when economic conditions are soggy. If inflation is under control, it is easier for the Fed to maintain a more accommodative monetary policy. If inflation is a problem, the Fed is limited in providing economic stimulus.

By tracking the jobs data, investors can sense the degree of tightness in the job market. If wage inflation threatens, it's a good bet that interest rates will rise; bond and stock prices will fall. No doubt that the only investors in a good mood will be the ones who watched the employment report and adjusted their portfolios to anticipate these events. In contrast, when job growth is slow or negative, then interest rates are likely to decline - boosting up bond and stock prices in the process.


Importance
The employment situation is the primary monthly indicator of aggregate economic activity because it encompasses all major sectors of the economy. It is comprehensive and available early in the month. Many other economic indicators are dependent upon its information. It not only reveals information about the labor market, but about income and production as well. In short, it provides clues about other economic indicators reported for the month and plays a big role in influencing financial market psychology during the month. Additionally, the Fed has made 6.5 percent unemployment a threshold for considering changes in policy - both for quantitative easing and the fed funds rate. And the Fed has emphasized that it is overall labor market conditions that matter - not just a specific number.

Interpretation
The bond market will rally (fall) when the employment situation shows weakness (strength). The equity market often rallies with the bond market on weak data because low interest rates are good for stocks. But sometimes the two markets move in opposite directions. After all, a healthy labor market should be favorable for the stock market because it supports economic growth and corporate profits. At the same time, bond traders are more concerned about the potential for inflationary pressures.

The unemployment rate rises during cyclical downturns and falls during periods of rapid economic growth. A rising unemployment rate is associated with a weak or contracting economy and declining interest rates. Conversely, a decreasing unemployment rate is associated with an expanding economy and potentially rising interest rates. The fear is that wages will accelerate if the unemployment rate becomes too low and workers are hard to find.

Nonfarm payroll employment indicates the current level of economic activity. Increases in nonfarm payrolls translate into earnings that workers will spend on goods and services in the economy. The greater the increase in employment, the faster is the total economic growth. When the economy is in the mature phase of an expansion, rapid increases in employment cause fears of inflationary pressures if rapid demand for goods and services cannot be met by current production.

When the average workweek trends up, it supports production gains in the current period and portends additional employment increases. When the average workweek is in a declining mode, it probably is signaling a potential slowdown in employment growth-or even outright declines in employment in case of recession.

Gains in average hourly earnings represent wage pressures. It is worth noting that these figures aren't adjusted for overtime pay or shifts in the composition of the workforce, which affects wages on its own. Market participants believe that a rising trend in hourly earnings will lead to higher inflation. But if increased wages are matched by productivity gains, producers likely will not increase product prices with wages because their unit labor costs are stable.