August’s Jobs Report Is a Throwback

We are kicking off the final third of the year with some widely awaited data: the US jobs report. Naturally, most coverage focused on how the Fed may interpret—and potentially act on—the latest employment figures. We won’t do that here, given we think it remains as fruitless an endeavor as ever. Rather, we want to highlight an overlooked trend: Recent jobs growth looks pretty similar to prepandemic rates. This is more evidence of the return to normal—not a bad thing for markets.

August nonfarm payrolls rose by 187,000, beating expectations of 170,000 and July’s (downwardly revised) 157,000.^[i] The unemployment rate also ticked higher, from July’s 3.5% to 3.8%, and wage growth slowed from the prior month’s 4.4% y/y to 4.3%.^[ii] The general reaction: The Fed’s plan to tamp down inflation, slow economic growth and cool the labor market via higher interest rates is working!

That seems to be a bit of a stretch to us. One, a 736,000-person increase in the labor force drove the unemployment uptick (the unemployment rate reflects the number of unemployed as a percentage of the labor force—the latter of which includes people who are actively seeking work).^[iii] Said another way, the unemployment rate rose because more people were looking for work in August. As for nonfarm payrolls, some one-offs weighed on the headline number. The bankruptcy of a long-troubled trucking firm in early August drove a decline of -37,000 in truck transportation employment while strikes by Hollywood actors and writers translated to a decrease of -17,000 jobs in the motion picture and sound recording industries.^[iv] In both cases, job losses seem tied to industry-specific issues, not Fed rate hikes.

Taking a broader view, yes, jobs growth has slowed: Last year’s median nonfarm monthly payroll gain was 358,000, stronger than 2023’s 217,000 (through August).^[v] But slower growth isn’t a sign of a sputtering economy—rather, we think it is a return to prepandemic trends. This context may be difficult to see since the pandemic has skewed people’s perception of economic developments. But 2023’s numbers look similar to growth rates during the 2009 – 2020 economic expansion. During that decade-long expansion, the median average nonfarm payroll change was 186,000. Moreover, during the expansion’s latter half—from 2015 to 2020, which removes the job losses often seen in a recovery’s early days—the median nonfarm payroll change was 199,000. Either way, 2023 doesn’t look like a massive outlier when compared to the pre-COVID era. (Exhibit 1)

Exhibit 1: Going Back to the 2010s?

Source: St. Louis Federal Reserve, as of 9/1/2023. Median monthly change in nonfarm payrolls, June 2009 – February 2020, February 2015 – February 2020 and January 2023 – August 2023.

The August jobs report is also in line with other recent US data. Inflation continues to cool since its June 2022 peak, which is consistent with slowing wage growth—another reminder wages lag, rather than lead, prices. Consumer spending keeps chugging along. Looking at the latest US economic data in a vacuum, many would probably think things are ok—not gangbusters, but not horrible, either. That is an overall fine environment for stocks, especially with sentiment still pretty skeptical.