US payrolls grew at a slower but solid pace in August, a sign their job market is cooling as the American economy approaches full employment

151,000 new jobs were added to the US labour market in August, less than was expected.

Although hiring cooled, it remains at a level consistent with steady job growth and capable of holding down unemployment. The underlying rate of job creation is still well-above the level required for the labour market to tighten.

The American unemployment rate remained at 4.9%.

Both the labour force participation rate, at 62.8 percent, and the employment-population ratio, at 59.7 percent, were also unchanged in August.

Apart from mining and oil, most other industries either saw rising employment of they were essentially unchanged.

This survey was taken in the middle of the country’s annual summer holidays, but is seasonally adjusted.

Wage growth remains good. In August, average hourly earnings for all employees on private non-farm payrolls rose by 3 cents to $25.73. Over the year, average hourly earnings have risen by +2.4%. Average hourly earnings of private-sector production and non-supervisory employees increased by 4 cents to $21.64 in August.

Pay gains like this keep American workers’ incomes growing well ahead of inflation. But the gains won’t be even; those with skills will be benefiting, those without lagging.

Today’s jobs report is unlikely to prompt a data-dependent FOMC to increase the fed funds rate later this month. After all, in order to be ‘reasonably confident’ that inflation will return to target, average hourly earnings will need to rise by more than 0.1% each month, as they did between July and August. That said, wage growth in the twelve months to July was revised higher, with average hourly earnings up +2.7%, a post-recession high.

How markets reacted

This data has reduced the chance of a September FOMC rate hike. It was probably low anyway because of the looming US presidential election, but few see it happening now.

Wall Street’s biggest banks are sticking to bets that the Fed will raise interest rates only once this year, and the increase would most likely occur in December.

The S&P500 rose after the data release, having fallen in the hours up to the release. But the impact was minimal. It has been more than a month since we have seen a daily move of more than 1% and today’s news didn’t threaten the 40 day calm that has descended on equity markets. The US dollar was unchanged. The benchmark UST 10yr yield ended the week at 1.6%, up slightly.

Implications for New Zealand

The US economy is in relatively good shape, and that is a key driver for world trade. Consumption demand in the world’s largest economy is unlikely to be affected by today’s data.

That means economies we are dependent on, such as China and the other emerging ASEAN economies won’t get a demand shock from this source. China’s demand for Australia’s minerals is unlikely to be interrupted by changes in demand from the US.

Further, the good growth in US incomes will be far more important that a employment of 10, or 20,000 people in a month in a labour market of 145 mln.

But the pushing back of Fed rate hike expectations to December will mean that the RBNZ’s own review can’t be under the cover of rising American policy rates.

Analysts here will be firming their expectations of one more OCR rate cut, something strongly hinted at by the RBNZ.

But given the good growth in our economy, it seems unlikely this will come in September.

The only remaining reason to cut NZ’s official interest rates seems to be to “get the dollar down”. But the RBNZ has been singularly impotent in achieving this via OCR cuts.

They don’t have the resources to push against international currency traders, and our good economic performance undermines the case anyway.

The few attempts to encourage and accentuate a currency depreciation have had only a fleeting impact. The effort is characterised as ‘throwing good money after bad’.

And there is the public policy problem of supporting industries that depend on an artificial exchange rate level to ‘survive’. Such industries actually need the higher real rate to encourage them to change and make and sell products that are not exchange-rate dependent.