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Jobs Report Is a Further Sign of Slowdown: Merrill

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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%.

There was a bright spot in the Labor Department’s August report. Average hourly earnings grew by 0.4% from July, helping to keep the year-over-year rate steady at 3.2%.

Much of the wage gains came at the production and nonsupervisory worker level, with their wages growing by 0.5% month over month — 3.5% year over year.

The Trade War’s Shadow 

August job gains showed broad-based weakness, Merrill’s analysis showed. The goods-producing sector added 12,000 workers, and the service-providing sector 84,000.

The manufacturing sector’s hiring continued to show the weakness that has been evident since the start of the year as the trade war has weighed on the sector.

Similarly, hiring activity has slowed significantly in the transportation and warehousing sector, with businesses pulling back in recent months in an effort to work off excess inventory brought in ahead of tariffs.

Even sectors not so directly affected by the trade war — the education and health services sector and the leisure and hospitality sector — slowed their hiring. Retail trade continued to shed workers at a rapid rate as retailers looked for ways to cut costs amid e-commerce disruption.

— Check out US Economy Would Be Fine if Not for Trade War: Economists on ThinkAdvisor.


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