On the surface, the August jobs numbers released by the Labor Department might seem OK. Unemployment ticked down to 7.3 percent, the lowest since December 2008. Dig beneath the surface, and we learn the reason for the decline was that people stopped looking for work. That's not what one wants to see at this point in an economic recovery.
So-called labor force participation dropped to the lowest level in 35 years. In an email interview, Wells Fargo chief economist John Silvia said the "declining participation rate is bad for financing entitlements long-term and (the) potential economic growth trend."
Growth in payrolls has been slipping. The government says employers added 169,000 jobs in August. Payrolls numbers for the previous two months were revised lower. That means that the number of jobs has grown over the previous three months by an average of 148,000. That's barely above the level believed needed to keep up with population growth.
Where jobs were added
The quality of the jobs being added remains in question. Some 44,000 of the new jobs were in retail. In a statement, the CEO of the National Retail Federation, Matthew Shay, said, "Employers and retailers are adding to their payrolls and ranks, but still remain guarded. The business community is hiring yet waiting for stronger signs of sustained economic growth before extending too many job offers." His comments come as retailers prepare for the holiday sales season.
Health care jobs increased by 33,000, while professional and business services added 23,000 new positions. A gauge of incomes, average hourly earnings have increased by 2.2 percent over the past year, according to the department.
Quandary for the Federal Reserve
A few months ago, Federal Reserve Chairman Ben Bernanke raised the possibility that the central bank could begin pulling back on some of the extraordinary measures it has taken to encourage growth while driving down unemployment. Economists, at one point, expected the Fed might begin reducing $85 billion in monthly asset purchases as soon as this month. The August jobs report appears to make that less likely.
In a statement, IHS Global Insight economist Doug Handler said, "The most likely timing of Fed tapering remains December." Bernanke will have an opportunity to address the issue with reporters Sept. 18, after the next Fed meeting.
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