The U.S. Labor Department’s August employment report, released Friday, revealed weakness in the labor market as nonfarm payrolls fell short of expectations at 130,000, according to an analysis by Bank of America Merrill Lynch.
“Overall, today’s numbers indicate that the economy is beginning to slow and the headwinds from the trade war are starting to spill over into the broader economy,” the report’s authors, Merrill U.S. economists Joseph Song and Michelle Meyer, wrote.
“This should keep the Fed on its easing cycle and supports our call for the Fed to cut rates by 25 bps at the September meeting.”
The payroll figure got a boost from the federal government’s preliminary hiring of census workers, accounting for 25,000 of the 34,000 workers added to public payrolls in August.
Private payrolls grew by 96,000, well short of the previous three-month moving average of 124,000. The two-month net revisions were down by 20,000, implying a weaker trend in employment activity, according to Merrill.
The August underemployment rate — the U-6 measure, which includes both discouraged workers who have stopped looking for a job and part-timers seeking full-time employment — increased to 7.2% from 7% in July, likely because businesses cut back hours.
Merrill said this pickup in underemployment suggested that more slack may exist in the labor market than the official measure indicates. Further pickup in the U-6 measure in the months ahead could portend that labor market conditions are starting to loosen and economic activity is decelerating further, it said.
All this aside, the unemployment rate held steady at 3.7%.