August 2018 marked 95 straight months of job creation in the US. This bullish run has far exceeded conservative predictions and estimates and doesn’t show signs of slowing down any time soon even with negative sentiments associated with the trade tariffs imposed by aluminum and steel imports.
US employers augmented the job market with 213,000 jobs in June 2018 and 201,000 jobs in August 2018, extending the US economy’s long-running growth streak.
Reasons for the long-running growth streak
There are quite a few reasons that have worked in favor of the overall economy. Enhanced emphasis on local talent for carrying out work, means that there are more jobs available for US citizens. It also signals a better supply of talent driven by the higher wage gains. At the same time, the wages aren’t adjusted for inflation. This means that the average employee will not be able buy more as compared to the past. The number of jobs added coupled with the low unemployment rates were key factors that led to the sustained growth story of the US work force.
Let’s do an in-depth analysis of the reasons behind the job growth in the US in August 2018:
1. Better hiring
As per Labor Department, services and healthcare have ramped up the hiring process, which impacted the job growth. August’s increase in job availability is primarily led by professional and business services (53,000 new jobs). The health care (41,000 new jobs) and transportation and warehousing (20,000 new jobs) sectors too have reported better than average increase in hiring.
In a rare downward trend, the manufacturing sector has reduced 3,000 jobs. The sector has seen a decline for the first time since July 2017. However, this also means that in spite of the decline, the sector has managed to still create 254,000 jobs over the year. It is also reported that installation, maintenance and repair workers had the lowest unemployment rate, at 2.5%.
The data shows two distinct takeaways – acute blue-collar labor shortages, coupled with moderate tightness for white-collar jobs.
2. Re-entry of people into active work force
The economic momentum has rallied more people to be a part of active workforce in the US. It is not a surprise to see a swelling in the labor force numbers (i.e. the pool of people working or looking for work). This number increased by 601,000 in June 2018, the biggest increase since February 2018.
A significant reason behind this increase is the number of people who were re-entering the workforce. The report shows that 200,000+ of those people were re-entering the labor force. An interesting aspect of this statistic is that this number is one of the highest of the past 4 years. Such high numbers were last reported in 2014.
3. Low unemployment rate
August 2018 saw 201,000 jobs added to non-farm payrolls. In the same period, the rate of unemployment too remained stable. With more people entering active workforce, it is a healthy sign that the unemployment rates have not increased beyond its previous months’ figures. As compared to July 2018, the August 2018 unemployment rate remained same at 3.9%.
Some of the key sectors that drove this growth include professional and business services, health care, wholesale trade, transportation and warehousing, and mining. As compared to a high of 6.6% in Jan 2014, the present levels of low unemployment rate seem to reflect the positive sentiments all-round present in the US economy.
A broader measure of unemployment — that includes unhappy workers who have given up their job searches and part-time employees who choose full-time positions – reduced from 7.5% to 7.4%. This number is significant because it is the lowest in 18 years (since April 2001). The ranks of such unhappy and discouraged part-time workers came down by 188,000 to 4.4 million in August 2018. The improvement is important when viewed with other market sentiments. It most likely depicts the strong labor market is assisting underemployed as well as jobless Americans to find work that is in line with their expectations.
4. Wage gains
The job creation streak which has continuously added more jobs than expected for the past 7 years now has also had a resulting effect. The US economy saw a steady increase in wage gains also. In the past few years the increase in wages has been lower than expected because of the recession.
However, industry analysts report that the recent trend has been uplifting. Business Insider states that the average hourly earnings rose by 0.4% month-on-month. Also, the year-on-year growth remains steady. The August 2018 number of 2.9% year-on-year increase has been at their fastest speed since June 2009.
5. Increase in federal rates
Another effect of the higher wage gains is the impact it has on the federal interest rates. The Federal Reserve could be prompted to increase interest rates at a faster pace to prevent higher inflation. This can impact trading in many ways. For instance, more aggressive stocks may see a dip in trading, and the less risky bonds might see more traction in trading. Additionally, the Fed might increase its benchmark interest rate by a quarter percentage point. This is the third such increase in 2018. It won’t be a surprise if it goes for a fourth round of increase in December.
Challenges that can act as a barrier to the growth story
There are some challenges which might take off the sheen from the stellar growth story witnessed by the nation for the past 95 months. The first challenge is the trade war that has erupted between the US and other nations like China, Mexico, and Canada, after President Donald Trump imposed tariffs on steel and aluminum imports. Trump maintains that the duties are needed in order to protect domestic industries from presumably unfair competition offered by foreign manufacturers. As per economics experts, this can disrupt the supply chains substantially and eliminate the stimulus received from the $1.5 trillion tax cut package that was implemented in January this year.