Insight

Jobs data show broad gains

KPMG Chief Economist Constance Hunter says consumers still have wind at their backs.

By Constance Hunter

With the 95th consecutive month of jobs growth, the consumer still has wind at its back.  Wages grew by 2.9% and 61% of firms are hiring. The six-month average pace of jobs growth of 185k jobs per month shows the economy is still growing above trend.

Broad-based gains were seen across multiple sectors with notable exceptions for manufacturing, autos and retail. A hint that while the Fed rate hike in September is expected, the December hike could be less of a sure thing.

Manufacturing saw slightly higher wages (+1.8% y/y) but fewer hires (loss of 3k jobs) and fewer firms were hiring; only 52.6% of firms were hiring.

Meanwhile, construction is adding jobs at a six-month pace of 15k with August showing a 23k reading. This sector is still short of workers and wages are rising above average at 3.3% y/y.

Overall, services jobs grew at a pace faster than the six-month average, adding 178k jobs versus the six-month average of 151k.  Increases in professional and business services, financial services and leisure and hospitality show a robust services sector.

Looking ahead to the signals and implications of this report there are three things to keep in mind.

  • Data suggest there is still some slack in the labor market which means the Fed likely does not believe it needs to be in a hurry to raise rates. It can continue to increase rates at a moderate pace. The difference between the headline unemployment rate and the broader measure that includes discouraged workers and those who are underemployed is not at its nadir just yet.

  • The break in the manufacturing jobs streak and the fall in the percent of manufacturing firms that are hiring bears watching. Should this trend continue it would be evidence that softness in the global economy, a stronger dollar and the impact of tariffs could be causing some indigestion in a sector that has done well for the past year.
     
  • The bond market took notice of the strong report and the faster pace of wages. The 10-year yield rose by over 6 basis points to 2.94%.  This is critically important because the difference between short-term interest rates and long-term rates had been narrowing. Should these two rates meet or should the long-term rate fall below the short-term rate it would be an inversion of the yield curve, historically a precursor to a recession. The Fed has been arguing that the 10-year yield would rise, a so-called increase of the term premium. Today’s bond market response to the jobs data suggests that term premium may indeed be making a comeback. A welcome signal for the future health of not only the U.S. economy but the global economy as well.

To speak with Constance Hunter, please contact Matt Weiss from KPMG's Corporate Communications team.

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