August Unemployment Numbers Miss, Putting Pressure on the Fed

The Labor Department reports that the economy added just 173,000 jobs in August, below economists’ expectations of a 212,000 gain.

The unemployment rate, though, edged lower to 5.1 percent, its lowest level since April 2008. A broader measure of unemployment and underemployment, the U6 rate, fell to 10.6 percent, its lowest level since June 2008.

While the official rate of unemployment is back to where it was before the financial crisis, that’s partly because many people have abandoned the workforce. The number of working-age people not in the labor force in August grew by 261,000. These people don’t have jobs, but they are not counted in the unemployment rate because they’ve given up looking for jobs.

The decline poses a challenge for officials at the Federal Reserve, which is considering raising interest rates at its next meeting later this month. By some measures, the job market is “back” to where it was just before the financial meltdown in late 2008. The Fed seems to want to exit the zero-interest-rate policy its held for more than six years, but questions about whether the economy could withstand such a rate hike have increased in recent weeks.

Friday’s report indicates the labor market is improving, but it is debatable how strong those gains are. Job growth for June and July was revised higher in the report, adding another 44k jobs in the Summer months. Job growth today is averaging just over 200k jobs a month.

That level of growth is enough to keep pace with population growth, but doesn’t add much to the number of people working.

The labor-force participation-rate, which shows the number of people with or looking for a job, remains at 62.6 percent. That low level was last seen in the 1970s when relatively few women worked.

Private sector employment grew just 140k jobs in August. The biggest sectors showing growth were health care and social assistance (+56k), professional and business services (+33k), restaurants and bars (+26k) and financial services (+19k).

Manufacturing shed 17k jobs and mining declined by 9k. Government jobs increased by 33k, with the bulk of the growth in local education (+22.9k).