U.S. Adds Jobs Despite Trade War and Global Slowdown
The U.S. Labor Market continues to add jobs at a slower pace. Despite commentary of a bad jobs report, this month's report deserves more credit.
The economy remains steady with:
- More people entering the labor force
- Increased wage growth
- Low unemployment rate
ThinkWhy™ It Matters
U.S. businesses should remain cautiously optimistic. New workers are coming off the sidelines as shown by the 80 percent employment rate among those 25-54 years old.
Employers will continue to experience a tight labor market and should:
- Hire based on company revenue performance as opposed to noise surrounding a potential recession
- Offer competitive wages to win talent
- Consider hiring from the alternative workforce to fill key roles
- Increase investment in process improvement and workflow automation
- Budget for enhanced training, upskilling and use of freelance talent
With labor productivity at its highest in nine years, businesses should continue to focus on employee retention initiatives. For rock star employees, a retention bonus goes a long way for engagement and reduced attrition.
U.S. employers continued to add workers but at a slower pace in August. The softening of job growth is somewhat expected as the U.S. economy is in the 11th year of continuous growth. Further, tariffs with China, a strong U.S. Dollar, global slowdown, the PMI dropping below 50.0 and declining capital investment are all forces creating uncertainty for the labor market.
- Labor force participation rate went up from 63.0 percent in July 2019 to 63.2 percent in August 2019
- The unemployment rate remained unchanged at 3.7 percent with 500,000 entering the workforce
- Over the year, average hourly earnings grew 3.2 percent with hours worked increasing 10 to 20 basis points
- Labor productivity is approximately 200 basis point higher than the past nine years
- Layoffs are down approximately 10 basis points year over year and compared to July 2019
- U.S. nonfarm total employment increased by 130,000 jobs in August, of which 28,000 were federal government workers
- Job growth has averaged approximately 158,000 jobs per month through August 2019, compared to a 223,000 job gain for the same period in 2018
- The change in total nonfarm payroll employment for June and July combined was revised down by 20,000 jobs
*Note: This is a national series and does not included revisions released by BLS on August 22, 2019. Preliminary downward revisions of 501,000 jobs from April 2018 to March 2019 are not included in this series. Data will be available early February 2020, per ThinkWhy communication with BLS.
Professional and Business Services make up 14.2 percent of total employment. Gain within this industry was 37,000 jobs. Average monthly job gains in the industry have averaged 34,000 jobs thus far in 2019, below the average monthly job gain of 47,000 in 2018.
Within this industry, employment in Computer System Design and Related Services and in Management of Companies and Enterprise increased by 10,000 jobs.
Education and Health Care Services make up 16.0 percent of total employment. Education and Health Care Service industries produced approximately 24,000 jobs, and 392,000 over the past 12 months.
Within this industry, Social Assistance employment continued producing jobs (+13,000 jobs). The industry has added 100,000 jobs during the last 6 months.
Financial Activity makes up 5.7 percent of total employment and has shown increased magnitude of job growth the last two months, averaging monthly job gain of 18,000.
Government jobs increased by 34,000, largely reflecting the hiring of temporary workers for the 2020 Census. The average tenure for Census-related jobs is between six weeks and two months.
Mining and Logging and Retail Trade industries lost 6,000 and 11,000 jobs, respectively. Mining and Logging has shed jobs, on average, this year. Volatility in the Trade, Transportation and Utilities industry continues. The drop in oil prices resulted in job cuts for the first time this year.
What to Expect
At this stage of the economic cycle, some deceleration in job growth is expected. Although this reduction is expected, moderate job gains for the remainder of 2019 should be seen, albeit below the 2018 growth rate. The annual pace of job gains in August 2019 was 2.074 million or 1.4 percent.
- Long-term job growth is expected to slow significantly starting late 2020 and will reach the trough during the 3rd quarter of 2021.
- Expect Professional Business and Technical Services and Healthcare industries to continue to lead the job gain and growth in the U.S.
- Mining and Logging and Trade, Transportation and Utilities sectors will continue to struggle to add jobs in the near term.
- Expect gradual increases beginning 4th quarter 2021, with the magnitude of growth expected to increase during 2022 and continue at a robust trajectory through 2024. After the low in Q3 2021, availability of labor is expected to loosen up along with new workers joining the labor force.
- Excluding the recession, historically low unemployment rates will force the U.S. economy into a shortage of skilled labor conditions, creating a hurdle to higher nominal job gain despite healthy U.S. economic fundamentals.