Cyclical Employment Growth Falls Further In August

Executive Summary

• Total employment growth cooled to 4.7% in August after the economy added significantly fewer jobs than expected.

• Cyclical employment growth declined and the average hours worked in the manufacturing sector dropped, two signs of ongoing cyclical weakness.
  
  
• The yield curve steepened, gold rose, and the US Dollar fell in reaction to the jobs report as the pervasive weakness may cause the Fed to retract recently hawkish commentary.

Cyclical Employment Growth Falls Further In August

The employment situation report published by the Bureau of Labor Statistics "BLS" showed the US economy added 235,000 jobs in August, far below the expected gain of 740,000.

Job creation in July was revised higher to 1.053 million from 943,000.

Total employment growth cooled to 4.7% in August when measured on a smoothed six-month annualized basis. This growth rate is down from 5.2% in July and 5.6% in April.

Total Employment: Growth Rate

Source: BLS, EPB Macro Research

As the housing market has started to cool, construction employment growth has declined materially, falling from 5.6% in March and April to just 1.1% in August.

Construction Employment: Growth Rate

Source: BLS, EPB Macro Research

Employment as an indicator of the economy leans towards a "lagging" metric. The timeliness of employment as an indicator can be slightly improved by focusing on cyclical areas of employment.

Charted below is the growth rate of two baskets of cyclical employment. The left side chart shows private payrolls excluding education and health services, two non-cyclical sectors, and the right side chart shows the growth rate of manufacturing and construction payrolls.

Cyclical employment growth is declining, down materially from the peak in March and April.

"Cyclical" Employment: Growth Rate

Source: BLS, EPB Macro Research

The March/April peak in growth is visible across all four major coincident indicators.

The slowdown in economic activity is broad-based, meaning it has reached all corners of the economy, from production to employment to consumption and income.