US private sector job creation is sputtering

The August non-farm payrolls report showed the private sector added just 118,000 jobs in April, lower than the 140,000 estimate, with downward revisions taking July’s figure down to a paltry 74,000.

On average, private sector job growth is running at a little over 96,000 from June through August. Excluding the COVID-induced job losses, the US economy hasn’t added this few private sector jobs in a three-month span since 2012.

We can’t really hand-wave away prior bouts of weakness as due to bad weather. This is a trend and the latest addition to the pattern of lackluster US jobs data.

Traders are pricing the odds of a 25 versus a 50 basis point cut at this month’s Federal Reserve meeting as a coin flip following this release.

The optimistic spin on the August jobs data is that the unemployment rate edged lower this month (from 4.3% to 4.2%) and initial jobless claims are subdued, with both metrics well below their historical averages. As well, the prime-age employment rate (that is, the share of 25-54 year olds who have a job) is at 80.9%, tying its cycle high. This could lead you to believe that we’re in a state of maximum employment, and simply running out of people to fill the jobs.

But… we have to take off the rose-colored glasses. That line of thinking is completely undermined by the upward trend in the unemployment rate over the past year and a half. That’s telling us a greater share of people who want a job are unable to find one, and is in direct opposition to the idea that the labor market is doing the best it can do.