Job gains fell below expectations for the month of August, totaling less than 200,000, but wage growth finally began to show some upward pressure. Analysts are still divided on whether it will be enough to convince the Federal Reserve to raise interest rates in their September meeting, however.
According to the August 2015 Employment Summary released by the Bureau of Labor Statistics (BLS) on Friday, nonfarm employment increased in August by 173,000, which is well below the monthly average for the previous 12 months of 247,000. The unemployment rate dropped to 5.1 percent while the number of unemployed persons in the nation fell below eight million. The unemployment rate and number of unemployed persons are down by 1 full percentage point and 1.5 million people, respectively, year-over-year in August.
While wage growth has been slow for the most part in recent months, average hourly earnings for all employees jumped by 8 cents in August up to $25.09, a year-over-year increase of 2.2 percent. This increase followed a gain of 6 cents in July. For non-supervisory employees, average hourly earnings increased by 5 cents in August up to $21.07.
The question on everyone's mind following Friday's BLS jobs report is: Will the Fed raise the federal funds target rate at the next Federal Open Market Committee meeting later in September? The lower-than-expected job gains for August should not be a cause for concern, since an upward revision is likely, according to one analyst.
"While the U.S. job market is in its third year of robust growth, the Fed is taking a broader and more comprehensive approach in making their decision."
"The soft headline may not even be an issue next month, as August payroll gains typically get meaningful upward revisions," said Doug Duncan, SVP and Chief Economist with Fannie Mae. "While the Fed could find reasons to delay raising rates, including increased downside risk for inflation and financial instability, we believe that it will not find one in this jobs report. We continue to call for a September lift-off, with a one-and-done hike this year on the way to normalizing monetary policy going forward."
There are arguments both for and against the Fed raising rates in September, according to First American Chief Economist Mark Fleming.
"The jobs report this morning was a good one, particularly the decline in the headline unemployment rate to 5.1 percent," Fleming said. "Additionally, some modest wage growth was also reported. It could be argued that these two facts increase the likelihood of a September rate increase by the Fed later this month. But keep in mind that the dual mandate of the Fed is to manage full employment and inflation, which seems nowhere to be found. In fact, the broader measure of unemployment that includes people who are working part time for economic reasons remained unchanged in this report and, while it has been improving, remains elevated relative to historical norms. Furthermore, long-term unemployment remains elevated. These facts could be used as an argument for continued slack in the labor market and a reason for delaying a rate increase. If not September, there are two more opportunities in October and December."
At least one analyst does not think a rate increase is likely after August's jobs report despite the job growth the nation has experienced in the last few years, however—and even if the Fed does raise rates in September, the effect on housing may not be noticeable.
"Looking at today’s jobs numbers, the Federal Reserve is unlikely increase interest rates when it meets later this month," Trulia Chief Economist Selma Hepp said. "While the U.S. job market is in its third year of robust growth, the Fed is taking a broader and more comprehensive approach in making their decision. Recent stock market volatility as well as slowing economic growth abroad will be major factors, as will the U.S. economy’s persistent improvement. But even if the Fed increases interest rates, any increases will be modest and gradual. This means the actual impact on homebuyers will be minimal."
Policy makers were also somewhat divided on a September rate hike. New York Fed president Bill Dudley said last week that a rate increase in September seemed "less compelling" following the losses in the stock market. Richmond Fed President Jeffrey Lacker advocated for a raise in rates, saying he was "always open to listening to my colleagues in the meeting," and that he was "going in (to the September FOMC meeting) with an open mind," according to Reuters. St. Louis Fed president James Bullard said earlier this week that the U.S. central bank is in “good shape” to raise rates and that the chances of such an increase are greater than 50 percent despite recent volatility in the stock market.
In Friday's jobs report, the employment rate among adults ages 18 to 34 (commonly known as the millennial generation) remained largely unchanged in August despite improvements in previous months. Many millennials will enter the housing market as first-time buyers in ebbs and flows as job stability improves among that age group, according to Hepp.
"No doubt, the sheer mass of the millennial generation will be a substantial tail wind for the housing market in the upcoming years," Hepp said. "In fact, a recent Trulia survey, found that more than 7 in 10 millennials plan to buy in 2018 or later."