Weak Jobs Data, Moderate Growth

Private payrolls increased in August by 152,000 vs. the previous month, a gain that was unexpectedly low. Once again the latest macro data point dispensed a surprise, which is typical. This time it disappointed the crowd, and by more than a trivial degree. Some analysts will jump on the news as a dark sign. It may prove to be… in time. But the fact remains that private payrolls continued to rise by 2%-plus on a year-over-year-basis through last month. That’s in line with the annual pace we’ve seen in recent months. In fact, each of the last three monthly updates for private payrolls show annual growth rates of 2% or better—the best consecutive trio of annual changes since last year’s fourth quarter. In other words, nothing much has changed. The private sector is still creating jobs on a net basis and at the rate that’s prevailed for much of this year. If anything, the rate has improved a touch.

This news will probably be lost in the rush to focus on the latest number and how it compares with the previous month. That’s certainly a more dramatic comparison — it always is. Indeed, as the chart below reminds, the monthly changes bounce around a lot, which is rich material if you're looking for economic drama. But the monthly numbers have a long history of misleading us. Revisions and other short-term distortions are no help if you’re looking for comparatively reliable signals about the big picture.

By comparison, the annual changes, although still less than perfect, offer deeper context vs. the monthly data. True for many economic and financial indicators, and true for payrolls.

In other words, it’s hard to get worked up one way or the other with today’s release. It could be an early warning of trouble ahead. But it could just as easily be noise. At this stage, we just don’t know... if our metric of choice is the monthly change. Par for the course when reading the tail end of a data set.

What we do know is that a broad review of the macro and financial numbers through July looks encouraging. Ditto for this week’s August updates on the manufacturing and services sectors. And speaking of the labor market, consider too that the trend through last month for initial jobless claims is bullish.

Does today’s payrolls news tell us otherwise? Not yet. It’s premature to say that there’s been a substantial change for the worse in the moderate pace of growth we've seen in the labor market. On the other hand, given today’s release, rest assured that next month’s payrolls report is sure to attract an unusually large crowd.