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Jobs report paints a mixed picture of health of the economy

“We are seeing that the trade war is starting to affect sectors like transportation and logistics,” said one senior economist.
Image: Pennsylvania Miner
The August jobs data revealed that mining jobs fell by 6,000, and the troubled retail sector shed 11,000 jobs.Dake Kang / AP file

The labor market fell short of economists’ expectations, with only 130,000 jobs created in the month of August, only 96,000 of which came from the private sector.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, characterized the report as “ominous” in a research note.

The unemployment rate remained at 3.7 percent, and other statistics painted a mixed picture of the health of the jobs market: The labor force participation rate ticked up to 63.2 percent, but the U-6, a broader unemployment measure, rose from 7 percent to 7.2 percent. Data from payroll processor ADP released earlier this week painted a more optimistic picture, though. It showed that the private sector added 195,000 jobs in August, 55,000 more than expected by economists.

For employers, it can be challenging to sift through these conflicting data points. “One of the things happening in this marketplace is looking at the generalized numbers doesn’t paint an accurate picture,” said Irina Novoselsky, CEO of CareerBuilder. “When you break it down, there’s a lot of different trends happening.”

“We do have a pretty big skills gap here in the U.S. That’s a factor,” said Scott Wren, senior global equity strategist at the Wells Fargo Investment Institute. “You have to have the skills to fill these higher paying positions.”

Novoselsky said employers are using A.I. to scrutinize sparse applicant pools and investing more in worker training. "Even in the population that’s working, there’s a skills gap,” she said. “The shortage of workers that are able to fill existing jobs is going to continue.”

Goods-producing employers contributed only 12,000 jobs to the August gains. A key measure of manufacturing activity showed earlier this week that the sector contracted, although non-manufacturing — that is, the larger, services-based part of the economy — grew at a better-than-expected rate. In August, manufacturing added a mere 3,000 jobs. Employment in mining fell by 6,000, and the troubled retail sector shed 11,000 jobs, weighed down by nearly 15,000 jobs lost at general merchandise stores.

“We are seeing that the trade war is starting to affect some adjacent sectors like transportation and logistics,” said Glassdoor senior economist Daniel Zhao. Employment in transportation and warehousing slipped last month, with nearly 5,000 trucking jobs lost, along with nearly 2,000 at transportation support businesses.

“We think of manufacturers and retailers as being particularly sensitive to trade issues, but in terms of cyclical indicators… I’m going to be closely attuned to construction and temporary workers,” said Josh Wright, chief economist at iCIMS. Residential construction jobs fell by 5,000 last month, while temporary jobs grew by 15,000. Labor economists view an expansion of the temp labor pool as a potentially troubling sign, since it can indicate that companies are unwilling to invest in permanent new hires.

“The trend is softening, as firms scale back hiring plans alongside capital spending, in the face of prolonged and deep uncertainty,” Shepherdson said.

“The expectation is that the U.S. economy will continue to grow in the months ahead, but the risks of a recession are heightened,” said Mark Hamrick, senior economic analyst at Bankrate. “There’s no doubt that the risks have been exacerbated by trade tensions, tariffs and weakness in the global economy."

Economic growth today depends almost entirely on the American consumer’s ability — and willingness — to spend. “On Glassdoor, we’re seeing job openings grow in industries driven by consumer spending and that provide consumer services,” Zhao said.

Wage growth remained at an annualized rate of 3.2 percent, the same as it was last month. “That tells us consumers can still pull the wagon forward,” Wren said. “We need that wage number at 3 or better for the market to have confidence in that level of consumer spending.”

The length of the average employee’s work week recovered from July’s drop, an increase that helped assuage fears that the robust consumer spending sustaining the economic expansion could be at risk.

“It’s super-important because our major engine of growth right now is the consumer, and to spend, you have to have income,” Wright said. “The work week doesn’t normally move a lot, but once the work week starts moving, look out.”

Unlike most of the figures in the monthly Bureau of Labor Statistics report, hours worked doesn’t just apply to new jobs, but across the board. “You’re multiplying that small change in the work week against the vast number of Americans who are working,” Wright said. “A small move there can make a big difference.”

This economy’s delicate balance could be upset if either wage or workweek numbers trend downward, or if prices driven higher by tariffs crimp Americans’ appetite for consumption. “It doesn’t seem like the trade war is having a huge affect on consumers yet, but that’s the risk we’re looking out for,” Zhao said.