HFF Analysis of the August 2017 BLS Employment Report

Friday, September 1, 2017

HFF is pleased to report on the latest employment expansion statistics from August 2017. Our research team analyzes trends and data to give readers a better view into the current state of the economy and how employment is being affected.

Employment Expansion

The pace of hiring slowed in August as nonfarm payrolls rose by 156,000 from the prior month and job gains in the prior two months were revised down. With the downwards revisions, employment growth so far this year has been slightly lower than last year’s pace, but the economy and labor market are still in good shape. The latest data did not reflect any disruptions caused by Hurricane Harvey, as the storm occurred too late in the month to be captured in government surveys. While the storm may depress payrolls at first, jobs will probably get a subsequent boost as construction and utility workers help rebuild housing and infrastructure.

Health Care and Professional Business Services led August’s employment gains. Construction jobs rose by 28,000, the most since February, and retail hiring recorded its first increase since January. The Unemployment Rate ticked up 10 bps to 4.4 percent in August.

Wage Growth rose 2.5 percent in August compared with a year earlier, matching the modest pace recorded most of this year. Payroll creation has averaged 198,000 since October 2010, marking the 83rd month of consecutive growth. The period of monthly gains is almost three years longer than the last longest streak from 1986 to 1990.

Average Monthly Payroll Creation Slowing

The current expansion cycle is similar to 1991 to 2000 and greater than the 2004 to 2007 expansionary period, but only after a significantly delayed recapture of the nation’s previous employment peak.

The U.S. created 2.16 million jobs in 2016, the smallest gain for a calendar year since 2011. The last six years’ job growth is on par with the expansionary period from 1992 to 1995.

In 2016, the U.S. created 2.16 million jobs. But nearly 32 percent of private-sector job gains came from construction, manufacturing, retailers, hotels, restaurants and temporary help agencies, all typically low-paying sectors. Professional Business Services, the industry sector most closely aligned with office-using employment, experienced expansion of 602,000 jobs in the year ending August 2017, the highest of any major employment sector. Fortunately, Temporary Staffing only accounted for 126,000 (approximately 21 percent) of these positions. Temporary Staffing is slowing, however, implying hesitance in hiring the lowest cost employees companies can find in tentative expansions.

Education and Health Services, which has performed well throughout the downturn being a recession-resistant industry, expanded by 476,000 jobs in the year ending August 2017. Mining and Logging continues to undermine headline growth but continued to grow positive this month with approximately 58,000 jobs being added in the year ending August 2017. Health Care and Business Services led August’s employment gain. Manufacturing jobs increased for the third straight month.

Unemployment Rate

The Underemployment Rate augments the Unemployment Rate to include anyone marginally attached to the labor force that is either not employed or employed only part time. Fortunately, the Underemployment Rate has descending from a recent high of just over 17 percent. However, the spread between the two rates is near an all-time high and shows no sign of rapid compression. The Unemployment Rate ticked up to 4.4 percent in August from 4.3 percent the prior month as more people joined the workforce. The Underemployment Rate came in at 8.6 percent in August, unchanged from the prior month. 

Wage Growth

As the labor force approaches “full employment,” much attention has been cast to wage growth. The past three recessions were preceded by a period of FOMC tightening. Average hourly earnings growth exceeded four percent in each of these periods as overall economic activity became reflected in strong wage growth.

With the current year-over-year percent wage growth registering apprxoimately 2.5 percent, one could argue overall economic activity has not yet reached levels that precede recessionary periods (often accompanied if not triggered by FOMC tightening to counter inflationary forces).

Sources: HFF Research, Bureau of Labor Statistics, Department of Labor, Bloomberg

Prepared by Morgan Allen, HFF Research Analyst, and Jimmy Hinton, HFF Managing Director of Research

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