A Disappointing Jobs Report May Mask Economy's Strength

Sep 5, 2014
Originally published on September 5, 2014 7:39 pm

The latest employment numbers indicate a slowdown in job growth, but many economists aren't buying it.

The Bureau of Labor Statistics said Friday that only 142,000 jobs were added in August. That's way below what analysts had expected. And many economists don't think it represents the true strength of the U.S. economy.

Economists from across the country voiced skepticism about the government's data.

"Today's employment report represents a little bit of an interruption in a very nice string of good news we've had on the employment front," said Carl Tannenbaum of Northern Trust in Chicago. "[The increase of] 142,000 jobs is by far the lowest that we've had so far this year, but it does appear out of order with some of the readings we've had otherwise."

He pointed out that data on manufacturing has been strong, and surveys of hiring intentions are good. And again this week first-time claims for unemployment insurance were very low. That leads Tannenbaum to believe the job creation number in the August jobs report will be revised upward in coming months.

John Silvia, chief economist at Wells Fargo, agrees. But he also thinks this report rightly curbs a bit of growing enthusiasm about the economy's strength.

"The job market continues to improve, but it's not accelerating," he said. "I think that was the disappointment some people expressed today — that they had very strong numbers [forecast] for the second half of the year in terms of job growth and overall economic growth. So, there's still growth, but it's not accelerating," Silvia said.

He does believe job growth will return to the 225,000- to 240,000-a-month range for the rest of the year. But he cautions that tepid global growth, especially the recent stalling out of the eurozone economy, could be a drag.

"Certainly, I think that the European situation will erode some of the growth expectations, as well as once again delaying any move by the Fed in terms of raising" interest rates, Silvia said.

Friday's disappointing job growth number does support Fed Chair Janet Yellen's argument that the economy won't be ready for a Fed rate increase anytime soon. The internal data that Yellen watches — including wage growth, the level of part-time work, and the level of long-term unemployment — all improved somewhat in August, but each needs to show more improvement before they suggest a tightening labor market.

Tannenbaum says Friday's report bolsters Yellen's position. "There have been voices at one end of the table that are suggesting that the job market is already dangerously close to getting a little tighter, but today's evidence would seem to undermine that point of view," he said.

The unemployment rate did tick down 0.1 percentage point, to 6.1 percent in August. That's usually viewed as a sign of a stronger labor market. But Friday's data show that it declined mostly because people were leaving the labor force, which suggests the labor market isn't providing enough jobs, and some job seekers are just giving up.

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Transcript

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Do the new unemployment numbers represent the true strength of the U.S. economy? The jobs report out today estimates that only 142,000 jobs were created last month, way below what analysts had expected. And as NPR's John Ydstie reports, many economists think things are better than what the numbers show.

JOHN YDSTIE, BYLINE: Economists from across the country's voiced skepticism about the government's report job creation in August. Carl Tannenbaum of Northern Trust in Chicago was one of them.

CARL TANNENBAUM: Today's employment report represents a little bit of an interruption in a very nice string of goodness we've had on the employment front. 142,000 jobs is by far the lowest that we've had so far this year but it does appear out of order with some of the reading that we've had otherwise.

YDSTIE: Tannenbaum points out that data on manufacturing has been strong and surveys of hiring intentions are good and again this week first- time claims for unemployment insurance were very. That leads Tannenbaum to believe the job creation number in today's report will be revised upward in coming months. John Silvia chief economist at Wells Fargo agrees. But he also thinks this report rightly curves a bit of growing enthusiasm about the economy's strength.

JOHN SILVIA: The job market continues to improve but it's not accelerating and I think that was the disappointment some people expressed today. There's still growth but it's not accelerating.

YDSTIE: Silvia does believe job growth will return to the 225 to 240,000 range for the rest of the year. But he cautions that tepid global growth, especially the recent stalling out of the Eurozone economy could be a drag.

SILVIA: Certainly I think that the European situation will erode some of the growth expectations - as well as, once again delaying any move by the Fed in terms of raising the federal funds rate.

YDSTIE: Today's disappointing number on job growth does support Fed Chair Janet Yellen's argument that the economy won't be ready for a Fed rate hike anytime soon. The internal data that Yellen watches, including wage growth, the level of part-time work and the level of long-term unemployment all improved somewhat in August but each needs to show more improvement before they suggest a tightening labor market. Tannenbaum says today's report bolsters Yellen's position.

TANNENBAUM: There have been voices at one end of the table that are suggesting that the job market is already dangerously close to getting a little tighter. But today's evidence would seem to undermine that point of view.

YDSTIE: The unemployment rate did tick down a tenth of a percent to 6.1 percent in August. That's usually viewed as a sign of a stronger labor market but today's data showed that it declined mostly because people were leaving the labor force, which suggests the labor force still isn't providing enough jobs and some job seekers are just giving up. John Ydstie, NPR News, Washington. Transcript provided by NPR, Copyright NPR.