The most interesting part of reviewing the labor market stats is how two analysts can look at the same data and can extrapolate completely different conclusions. We’ll show you the positive and negative theses from the August labor report. First let’s review the headlines. Even in the headlines there is a tail of two cities. The good news is 201,000 jobs were created which beat estimates by 6,000. Average hourly earnings growth was 0.4% month over month and 2.9% year over year. That’s above July’s results which were 0.3% and 2.7%, respectively. Also, weekly earnings growth was 3.2% versus 3% in July.

The bad news is the prior two months were revised to show 50,000 less jobs created, the manufacturing sector lost 3,000 jobs instead of adding 21,000 jobs, the participation rate fell to 62.7% from 62.9%, and the total employed people fell from 162.3 million to 161.8 million. Interestingly, the payrolls number doesn’t include self-employed workers, but the labor force calculation does. The prime age participation rate fell from 82.1% to 82%. Overall, the labor market kept growing, wage growth accelerated, but total workers in the labor market actually fell.

The Negative Thesis

 The latest ECRI leading index reading is down 0.2% year over year which signals the economy should be slowing down. The ECRI chart below summarizes the negative stance on the labor market. 

Source: ECRI chart

The ECRI chart shows that growth in hours worked is declining while average hourly pay growth is accelerating. Since all that matters is take home pay, this switch leaves us back at square one. It looks worse recently as you can see aggregate payroll growth, shown with the purple line, has decreased.

We see the results differently when looking at average weekly earnings growth which adjusts for hours worked. As we mentioned, weekly earnings growth was 3.2% in August. It is closing in on the expansion peak which is 3.4% which was reached in October 2010 and June 2018.