Adam Ozimek, chief economist at Upwork
The labor market in August disappointed, with nonfarm payrolls increasing by 130,000. Although this number is below consensus expectations of 170,000, it is still above the amount of job growth necessary to keep up with population growth. An important caveat is that August’s jobs growth was boosted by Census hiring. However, looking at private payroll growth of 96,000 the underlying story remains the same. In short, the slowdown is real but fears of a recession are overblown.The bad news this month is that job growth is below what the economy could be generating right now given a labor market that is still well short of full-employment. The good news, these numbers don’t provide evidence that we are entering a recession. Instead, the crucial data points remain supportive of continued improvement. The unemployment rate is historically low and job growth over the last three months has averaged 156,000. Importantly, the prime age employment rate -the widest and most relevant measure of labor market slack- moved up again this month after a weak few quarters and is now at a post-expansion high of 80%. Overall, the single most important distinction in understanding the economy right now is to not mistake a slowdown in the pace of improvement with the kinds of headwinds that will inevitably turn into an economic correction. The three factors that are holding the economy back are trade uncertainty, weak global growth, and continued payback from the Fed hiking rates too high too fast last year. Up against this is an economy that still has room to run, and households and businesses that have not stretched themselves by investing aggressively. In other words, without a boom, a bust is less likely. Nevertheless, the risks from the trade war increasing and worth monitoring closely. Tariffs are a tax on U.S. households and businesses, and beyond this direct impact it is creating a significant amount of business uncertainty. In addition, while the Fed has reversed course, the delays and lags of monetary policy suggest that last year’s aggressive and unnecessary rate hikes are still a headwind. On the positive side of the ledger, the deep fundamentals of the economy remain strong. Households post-recessionary risk aversion have left household balance sheets in good shape, with low debt payments. The economy is not at full-employment, which means that the labor market will continue to improve. The Fed has also changed their tune, and there is less risk now than there was last year at this time that a mistake by the Fed will tip the economy into recession. Altogether, the headwinds are enough to slow growth. But they are not yet enough to drive the economy into a recession. The story is still positive but disappointing at this point in the long, long recovery.
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