US economy creates a modest 130,000 jobs in August

US job growth slowed to its weakest level in three months in August despite a boost from temporary hiring for census workers, as uncertainty stemming from the US-China trade war weighed on the labour market.

Non-farm payrolls rose by 130,000 last month, data from the Bureau of Labor Statistics showed on Friday, short of Wall Street’s expectation for 158,000, according to a Thomson Reuters survey of economists.

That followed downward revisions to job growth in each of the two previous months, resulting in 20,000 fewer jobs that previously reported.

The report showed employment in federal government had increased by 28,000, driven mostly by the hiring of 25,000 temporary workers to prepare for the 2020 census. Private payrolls increased by 96,000, the slowest in three months.

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Job growth has averaged 158,000 per month this year, below the average monthly gain of 223,000 in 2018.

The report also showed average hourly earnings rose 0.4 per cent last month, translating to 3.2 per cent year-on-year wage growth, although this was a slip from July’s upwardly revised 3.3 per cent gain. Economists had forecast a 0.3 per cent and 3.1 per cent rise, respectively.

The unemployment rate held steady at 3.7 per cent for the third consecutive month.

US stock futures pared their gains following the data, with S&P futures up 0.3 per cent, while Treasury yields dropped, with that on the two-year note down 1.6 basis points at 1.5261 per cent and that on the 10-year down 0.5 basis points at 1.5602 per cent. Yields move inversely to price.

The data add to signs the US economy could be losing momentum despite strong consumer spending. Investors were caught off-guard this week after data showed the domestic manufacturing sector had contracted in August for the first time in three years.

Over the past year businesses have put off investments as they waited for a resolution to the trade war. But they are not letting workers go – job growth was flat in the manufacturing sector. There was also no change to employment for companies that move and store goods, which can serve as a leading indicator for broader growth.

Bright spots

Friday’s non-farm payroll report had some bright spots, with weekly work hours and hiring for temporary workers firming up. These are considered early indicators for labour market weakness, as companies typically cut temporary workers and employee hours when faced with an uncertain business environment and economic slowdown.

The Federal Reserve, which was looking for a clear signal ahead of its September meeting, got little cheer from the jobs report, which supported the same basic story of the summer: caution among manufacturers, with limited effect on the rest of the economy.

Markets have priced in a 25-basis point rate cut from the Federal Reserve when it meets later this month. The central bank reduced the benchmark interest rate in July for the first time since the recession, citing uncertainties linked to weakness in the global economy and simmering trade tensions.

Policymakers are tasked with weighing up the economic fallout of the US-China trade war, which chairman Jay Powell says poses a "new challenge" for the central bank's policy framework – alongside sluggish inflation that is running below the Fed's 2 per cent target.

Friday's report leaves the Fed's Open Market Committee with the same choice it has had all summer. It could act decisively in September, before the data are clear, to try to prevent a recession, as demanded by the White House. Or it could wait for the data to turn sour.

Economists note that not all of the weakness in the labour market can be attributed to trade, with the downshift in private sector jobs concentrated in services such as retailing, finance and business services.

"These can't all be blamed on the trade war, so we think the odds favour a partial rebound in September," said Ian Shepherdson, economist at Pantheon Macroeconomics. "But the trend is softening, as firms scale back hiring plans alongside capital spending, in the face of prolonged and deep uncertainty." – Copyright The Financial Times Limited 2019