The August employment report presents a picture of a weakening labor market with no upward momentum. Hiring is higher, but only for a few narrow sectors that offset broad-based declines. The unemployment rates are all moving higher in small increments of one- or two- tenths, but these are showing steady loosening in labor market conditions. Measures of job losers are on the rise, and job-leavers are few against a backdrop of uncertainty. Importantly, the number of new entrants to the labor market is on the decline in August. If the balance of supply and demand are about even at the moment, it is because there are both fewer jobs open and minimal growth in workers to fill them.

When the FOMC meets on September 16-17, it will have more evidence that the mandate for maximum employment may need some support. In tension with that will be if the August inflation numbers are unfavorable and if policymakers are more convinced that recent price increases will be of short duration.

Nonfarm payrolls are up 22,000 in August and below the consensus of up 77,000 in the Econoday survey of forecasters. There is a net downward revision of 21,000 to the prior two months. Private payrolls rose 38,000 in August while government payrolls are down 16,000. For the third quarter to date, monthly payroll increases average 51,000, down somewhat from the average of 55,000 a month in the second quarter and lower than the average of 111,000 in the first quarter. Overall hiring has slowed substantially with mixed conditions across industries.

Goods-producers payrolls are down 25,000 in August with decreases of 6,000 in mining and logging, 7,000 in construction, and 12,000 in manufacturing. Private sector service-providers' payrolls are up 63,000 in August, but the majority of that is from a 46,800 increase in health care and social assistance and 28,000 in leisure and hospitality.

Average hourly earnings are up 0.3 percent in August from July and up 3.7 percent year-over-year. Workers continue to receive moderate increases but the trend is slowing.

The unemployment rate rose one-tenth to 4.3 percent in August and is the highest since 4.5 percent in October 2021. The August level matches the consensus in the Econoday survey. The labor force is up 436,000 to 170.8 million in August, with the number of employed up 288,000 and unemployed up 148,000. The unemployment rate remains consistent with a healthy labor market in the historical context but the payroll data suggests this is not fully reflective of present conditions.

There are some indications of a less positive situation for workers in August. The number of people working part time for economic reasons is up 65,000 to 4.749 million. Job losers are up 32,000 to 3.437 million. The number of job leavers is unchanged at 784,000 in August. New entrants to the labor force are down 199,00 to 786,000 while reentrants are up 107,000.

The labor force participation rate is up a tenth to 62.3 percent in August but remains below earlier this year.

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.