The Labor Department announced this morning that the American economy added 169,000 jobs in August and that the unemployment remained steady at 7.3%. In addition, it revised job gains in June and July downwards a total of 74,000 jobs — meaning that the overall job gain implied by this report is just 95,000.
The data beneath the headlines are not much more encouraging. The labor force participation rate, or the percentage of working-age Americans who are in the labor force, fell to 63.2%, the lowest since 1978. Though hourly earnings did increase by 5 cents from June to July, the overall trend of inflation-adjusted wage growth has been flat — falling in real terms since last summer.
Despite the fact that average pace of job growth over the past year has averaged a healthy 184,000, weakness in the labor market continues to manifest itself in stagnant wages and low labor force participation. Though the unemployment rate has fallen steadily over the past twelve months, as the chart below shows, the overall share of the population with jobs remains stuck around 59%:
And without wage growth, it will be difficult for the American economy — which is powered in large part by consumer spending — to begin to grow at a faster pace.
That being said, the report wasn’t all bad news. One particular bright spot was the fact that total government employment increased by 17,000 jobs last month. Ever since federal stimulus money began to dry up in 2010 and 2011, government employment (especially at the state and local level) has been on the decline. This report suggests that we may have finally stopped the bleeding as far as government sector is concerned, and that it will at least no longer be a headwind going forward.
But the overall weakness of this report cannot be denied, and there aren’t many reasons to be optimistic about the economy in the near future either. Gridlock in Washington means that it’s highly unlikely the President and Congress will agree on any measures — be it tax cuts, stimulus spending, or simply tax reform — to boost the growth in the short-term. Furthermore, we are quickly hurdling towards another showdown over the debt ceiling, which will be breached in as few as six weeks, according to Treasury Secretary Jack Lew. If Congress and the President can’t come up with a plan quickly to raise the debt ceiling, it will likely cause significant stress in financial markets and possibly dampen the economic recovery further.