The August employment report was mixed but overall suggests further improvement in the labour market . In particular, the unemployment rate fell two notches to 5.1% (5.112% in unrounded terms) as household employment increased 196,000 and the labour force decreased by 41,000. At 5.1% the unemployment rate has now reached the FOMC's projected NAIRU, with only two weeks left before the September FOMC meeting . Average hourly earnings increased 0.3% m/m following a 0.2% increase in July, so there are tentative signs of better wage growth.
Overall, nonfarm payrolls increased 173,000 but upward revisions to July (+30,000) and June (+14,000) lift the total including revisions to 217,000 and the three-month average monthly job gain is a solid 221,000. The private payrolls number was somewhat less upbeat , with an increase of 140,000 in August and only a net 5,000 upward revision in the previous two months but this still leaves the three-month average at a healthy 194,000. Average weekly hours increased from 34.5 to 34.6 and, overall, aggregate hours worked increased a solid 0.4% m/m .
Weakness was seen in manufacturing payrolls , with a decline of 17,000. This matches the decline in the ISM manufacturing index in August, as the headwind from a stronger USD and uncertainty on global growth seem to be holding back both production and job growth.
The combined uptick in average hourly earnings and aggregate hours worked sent our payrolls income proxy higher in August showing support to household income growth. Combined with the recent decline in gasoline prices, household spending should stay strong in coming months.
The current pace of job growth is in our view consistent with the FOMC's condition of 'some further improvement in the labour market' and the unemployment rate of 5.1% is now at the FOMC's NAIRU projection from June. However, momentum in growth seems to be slowing, in particular in the manufacturing sector and this is true for job growth as well. Therefore, we believe the current uncertainty on the outlook combined with increased financial market volatility and low current inflation rates is likely to sway the Fed to wait a little longer before raising rates. We believe a first rate hike will come in December this year .
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