August Jobs Report: What to Look For

The Labor Department will release its estimate of hiring and unemployment for August at 8:30 a.m. Eastern time. The monthly report provides a snapshot of the American economy. Here’s what to watch for:

  • Analysts on Wall Street are predicting a gain of 160,000 jobs, according to Bloomberg, compared with an increase of 164,000 in July.

  • The unemployment rate is expected to be unchanged at 3.7 percent. That is close to a 50-year low, and a sign of the labor market’s recent strength.

  • Average hourly earnings are expected to rise 0.3 percent. That would bring the 12-month increase to 3 percent.

After weeks of rumbles on Wall Street and growing talk about recession prospects, Friday’s report on job growth could provide a clearer picture. A weak number will be cited by pessimists as definitive evidence of an economic slowdown. A healthier showing will be regarded as a sign of the economy’s overall strength, despite problems in manufacturing and other sectors.

“Many of us are on tenterhooks waiting for this set of numbers,” said Carl R. Tannenbaum, chief economist for Northern Trust in Chicago. “Because of where we are in the business cycle, it’s taken on particular importance.”

For his part, Mr. Tannenbaum is looking for a gain of 135,000 to 150,000 jobs. “Not altogether disappointing, but we’ve gotten used to better,” he said.

For all the anxiety about the economy, the labor market has held up well. In the first seven months of the year, employers added an average of 165,000 jobs per month. That pace is expected to slow, but anything less than a gain of 100,000 jobs last month would point to future weakness.

A private survey of job creation at companies, the ADP National Employment Report, published on Thursday, showed a gain of 195,000 in August. Although there is limited correlation between ADP’s figures and government data historically, at least one person was elated. “Really Good Jobs Numbers!,” President Trump wrote on Twitter on Thursday.

One way to think about the economy would be to divide it into two parts: making and serving. The first covers businesses like manufacturing, mining and construction, while the other includes fields like health care, education, retail and technology. The service economy is much larger, but goods-making sectors often indicate what lies ahead. In recent months, manufacturing has had paltry job gains even as service industries reported steady growth.

On Tuesday, a key measure of the factory sector showed activity contracting, which caught many observers by surprise. They shouldn’t have been so shocked — factories have been facing headwinds for months from the escalating trade war with China and slowing global growth.

A parallel survey of the service sector published on Thursday presented a much healthier picture.

As a result, the latest jobs data will be watched closely to see if factory employment continues to grow slowly, or even drops. In the first seven months of 2018, manufacturers added 162,000 jobs compared with 55,000 in the same period for 2019.

Why are factories so sensitive to the tariff issue and economic growth abroad? They export a larger share of their products than other businesses, and are highly dependent on suppliers overseas. They feel the bite of tariffs right away and can’t easily alter their supply chains.

Torsten Slok, chief economist at Deutsche Bank Securities, has concluded that manufacturing is under pressure. Now he wants to see whether the weakness is spreading from the “making” part of the economy to the “serving” part. That would be a precursor to recession.

Mr. Slok also notes weaker capital spending by businesses, another sign that the service economy may soon take a hit.

“If companies are holding back on assembly lines, computers and buildings, then the next step is hiring,” Mr. Slok said. “The trend is not your friend.”

Policymakers at the Federal Reserve are clearly attuned to the dangers of a slowdown — in July, they cut rates for the first time in more than a decade.

The consensus among traders is that another quarter-point reduction is likely, but some experts think the central bank could ease rates by half a percentage point. A weak jobs report would strengthen the hand of those who favor a larger cut.

A robust report would complicate plans for a more rapid easing, said Kathy Bostjancic, chief United States financial economist at Oxford Economics. A half-point cut would fade out of view.

But even with a healthy number, a quarter-point reduction seems certain, Ms. Bostjancic said. The Fed has already signaled its openness to easing monetary policy in light of rising risks, and one monthly jobs report, good or bad, isn’t likely to be enough to change the central bank’s course.

“After September, we expect additional rate cuts in October and December as the downside risks are increasing,” she added, citing the impact of tariffs, slowing global growth and the weakness in American manufacturing.

In part, she said, the rate cuts are intended to compensate for the anticipated drag from the tariffs in 2020. She estimates tariffs will reduce economic growth by more than a half a percentage point next year.

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