130K Jobs Added In August, Unemployment Steady At 3.7%

Stagflation is an initial reaction to a widely mixed August employment report that builds up cases for both a rate cut at the mid-month FOMC and no action at all. Data supporting a rate cut are weakness in payroll growth, at a headline 130,000 for nonfarm payrolls which is 20,000 short of the bottom of Econoday's consensus range. Private payrolls, which exclude a census driven 34,000 rise in government payrolls, came in at only 96,000 which is 40,000 short of the low estimate. Manufacturing did manage to make the consensus range but the 3,000 total was 5,000 short of the median with July revised a very steep 12,000 lower to growth of only 4,000.

Now the data supporting no action which are led by an outsized 0.4 percent rise in average hourly earnings, a result that speaks to wage pressures tied to a narrowing supply of labor. Earnings have now posted four straight elevated readings, at 0.3 percent in July, June and May as well. The participation rate supports the risk of diminishing supply, up a sharp 2 tenths to 63.2 percent. The unemployment rate did not move in August, holding at 3.7 percent which, however, is historically very low and next only to 3.6 percent rates seen back in April and May.

Sandwiched between slowing employment growth and rising wages is not the ideal policy combination for the Federal Reserve which would find itself in a bind should inflation begin to accelerate at the same time that global growth and the nation's manufacturing sector are turning lower. The latter underscores the weakness in manufacturing payrolls that, on the margin, probably tilts the conclusion toward the need to add more stimulus to the economy.