EmailThe employment situation deteriorated sharply in August as nonfarm payrolls were unchanged after increasing a downwardly revised 85,000 (from 117,000) in July. The Briefing.com consensus expected payrolls to increase by 70,000.
Excluding government payrolls, which declined by 17,000 in August after shedding 71,000 jobs in July, nonfarm private payrolls increased by only 17,000. That is the lowest increase in private payrolls since the sector eliminated 21,000 jobs in February 2010. The consensus expected private payrolls to add 110,000 jobs in August.
The fact that nonfarm payrolls came in under consensus expectations for both total nonfarm and private payrolls should not have been a surprise. As we mentioned in the preview, many economists failed to take into account the Verizon Communications strike in their forecast. Those strikers alone caused a decline of approximately 45,000 in nonfarm payrolls in August.
Even after including the striking workers, however, the numbers were far worse than expected.
Given that the initial claims level implied a private payroll gain of only 100,000 in August, 55,000 would have been a conservative estimate of private payroll growth. After subtracting expected government layoffs, total nonfarm payrolls were forecasted by us to increase by roughly 16,000.
It seems that the private sector stopped laying off workers in August, which was in-line with the claims data, but never instituted a new round of hiring. That left very minimal payroll gains.
The underlying details, unfortunately, do not bode well for consumption growth in August.
Weekly hours declined from 34.3 in July to 34.2 in June and hourly earnings fell 0.1% in August after increasing 0.4% in July. Combined with the limited payroll increase, wages fell 0.4%. Unless the savings rate also declined, which is unlikely given the recent deterioration in confidence, consumption probably fell by more than 0.4% in August.
