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  Dr. Sohn's Commentary

Nonfarm Payroll Report for August


September 01, 2017



The economy added 156,000 jobs in August. The strength in the job market was broadly based except for the government. Manufacturing, construction and healthcare accounted for more than half of the job gains. The June and July numbers were revised down by 41,000. The unemployment rate edged up to 4.4 percent from 4.3 percent. Wages rose 0.1 percent for the month and 2.5 percent form a year ago.


This report puts an “Unhappy Face” on the economy. After the doldrums during early this year, many assumed that the job market has gained steam again. This report, together with the substantial downward revision, paint a weaker job market. Seasonal adjustment could be a culprit. Historically, the government has had problem estimating August back-to-school numbers. Often it resulted in significant upward revisions later. The economy is near full employment. In the past, the ranks of discouraged workers and part-timers for economic reasons have rejoined the labor force, but this trend could be coming to an end.  


However, the job market could rebound during the fall months adjusted for Hurricane Harvey. Both consumers and businesses are in spending mood. More jobs, better confidence, higher wealth and low inflation are boosting consumer spending. Business sentiment is bullish because of higher consumer spending, stable oil prices and stronger exports and the expectation of the tax reform with lower corporate tax rates. 


The fly in the ointment in this report is slow wage gains. The year-over-year wage gain has been stuck at 2.5 percent pace since April despite the generally healthy labor market. In previous months, many of the jobs have come from low wage sectors such as restaurants, leisure and hospitality as well as home care for the elderly. In August high-paying sectors such as manufacturing, construction and healthcare provided more than half of the job gains. The puzzle has become more complicated.


The FOMC won’t pull the trigger on the interest rate in September considering the sluggish wage performance. However, the balance-sheet normalization will proceed as expected in order to reduce excess liquidity and get ready for the next cycle.  

 

 

 



 
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