August Employment: Still Growing Slowly

September 5, 2006 – According to Friday’s data release, U.S. payroll employment rose by 128K in August after a revised July increase of 121K (Chart 1). August was the fifth straight month of relatively sluggish job growth in an unusually narrow 100K to 135K range.

Chart 1. Change in payroll employment. Monthly and 3-month moving average. January 2000 through August 2006.

Payroll growth averaged 128K per month for the three months through August (Chart 2), the same as its monthly increase.

Chart 2. Change in payroll employment. 3-month moving average. January 1987 through August 2006.

The unemployment rate was essentially unchanged in August, edging down by 0.1 percentage point to 4.7% (Chart 3). The August labor force participation rate was literally unchanged at 66.2%.

Chart 3. The unemployment rate. Actual and 'full employment'. January 1987 through August 2006.

The August unemployment rate was 0.3 percentage points below the Congressional Budget Office’s (CBO) latest estimate of its full-employment level. The latter was revised last month to 5% from 5.2%. The new CBO estimates suggest that the economy’s labor supply is currently slightly less “tight” than previously seemed to be the case.

Average hourly earnings edged up by 0.1% in August, after increases averaging 0.5% per month for the prior two months. The twelve-month trend in earnings growth held steady at 3.9% in August (Chart 4).

Chart 4. Average hourly earnings. Nominal and real. Year-ago percent change. January 1987 through August 2006.

As of July, these nominal earnings gains were still running only slightly above/below the rate of inflation, depending on the inflation measure used. The chained price index for personal consumption expenditures rose by 3.4% for the twelve months through July, and the consumer price index (CPI) rose by 4.1%.

Bottom line: The continuing modest trend in August job growth should help to persuade FOMC members to keep the target Fed funds rate unchanged at their policy meeting this month.

Suzanne Rizzo