Jobs growth is slowing
- The economy generated 130,000 new jobs in August, down 29,000 from July. However, private sector job growth was much slower. Only 96,000 private sector jobs were created in August compared to 131,000 in July. Government payrolls have been increasing the past few months as the country gears up for the 2020 Census.
- On a positive note, hourly earnings continue to grow as the labor market remains tight. With unemployment hovering at 3.7%, hourly earnings increased 11 cents to $28.11, bringing the year-over-year growth to 3.2%.
- At this late stage of the economic cycle, we should not expect to see job growth re-accelerate.
Lower commodity prices keep inflation below Fed target
- When the price of a particular good or service rises, consumers often compensate by buying a less expensive substitute. In the case of gasoline, or a prescription drug, this isn’t always possible. As the Annual Rate of Inflation graph shows, core inflation, which excludes food and energy, tends to be more stable over time.
- Since the end of the last recession in 2009, it has only touched 2% very briefly. Currently, because low oil prices and low commodity prices are pushing inflation down, headline inflation is actually lower at 1.4%.
Tariffs weigh heavily on manufacturing sector while the service economy remains healthy.
- For the first time since 2016, and only the third time since 2009, the manufacturing sector has slipped into contraction. The August ISM Manufacturing Index dipped to 49.1 from 51.2 in July. A reading below 50 indicates that the sector is contracting. This is the fifth month in a row that the index has trended lower.
- Components of the index, like employment, new orders and production all fell in August, as trade issues have increased input costs and squeezed profit margins for factories that rely on Chinese sub-assemblies or parts. Additionally, the stronger U.S. dollar has made American goods relatively more expensive, pushing down demand.
- Meanwhile, the service economy continues to grow, albeit at a slower rate.
- Business activity is increasing in the service sector, but employers are having a hard time filling available jobs.
- Nonmanufacturing industries like retailers are already starting to gear up for the holiday shopping season.
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