Employers likely maintained a brisk pace of hiring in February and boosted wages for workers.
Photograph by Tim Boyle — Getty Images

The Fed's decision is not as easy as it looks.

By Stephen Gandel
September 2, 2016

On Friday, the Bureau of Labor Statistics announced that U.S. employers added 151,000 jobs in August. That was nearly 30,000 fewer jobs than economists had been expecting, and nearly 125,000 fewer positions than were added by employers in each of the prior two months.

Investors, naturally, reacted with glee.

The Dow Jones Industrial Average rose by as many as 125 points in reaction, before moderating its gains. In recent trading, the Dow was up about 50 points, or 0.25%, while the S&P 500 and Nasdaq were up similar percentages.

Investors appeared convinced that the worse-than-expected jobs report will cause the Federal Reserve to once again delay raising rates. Indeed, the derivative market where traders place bets on future interest rates showed a drop in the likelihood of a September increase to just 21%. It was only at 37% before the jobs report, according to the CME.

The problem with this interpretation is the chance of the Fed raising interest rates this month is not as out of the question as it seems. That’s in part because the disappointing jobs report was actually not as bad as it seems. Here are three reasons why the August jobs report was actually a lot better than people thought, and why the Fed may still think hard about raising rates.

Hiring Was Actually Up From a Year Ago

Most people focus on the month-to-month change in job growth. But if you look at the jobs created last month vs. a year ago, it was actually up slightly. That’s important. August is usually one of the worst months for jobs growth because college-age kids go back to school, and employers who make seasonal hires tend to close up shop in general. The Labor Department’s seasonal adjustments are supposed to correct for that, but it rarely works out in real-time: From 2011 to 2014, monthly payroll gains for August were revised up by an average of 94,000 jobs, Bloomberg reports.

Ranked against other Augusts, last month was pretty solid. Not the best August we have had since the end of the recovery—that was 269,000 jobs in 2013—but far from the worst. The economy lost 34,000 jobs in August in 2010.

Retailers Went on a Hiring Spree

During this recession there have been continued concerns about the health of U.S. consumers, who took on way too much debt in the years leading up to the 2008 financial crisis. Ever since the Great Recession and its aftermath, we have gotten mixed messages from the statistics on whether shoppers were spending with vigor again. For example, the drop in gas prices in 2014-2015 did not produce as much as a pop in spending as many economists anticipated.

But in August 2016, the retail sector seemed robust. It was one of the economy’s biggest job gainers, adding 15,000 jobs. And it wasn’t just the back-to-school shopping season. Retailers employed nearly 300,000 more workers than they did a year ago.

On top of that restaurants added 34,000 workers, another sign that consumers are willing to spend. (Related: Why Americans Are Spending More on Experiences vs Buying Stuff)

Oil Sector Hiring Rebounded, a Bit

Perhaps the best news in the August jobs report is that the damage to the economy from week oil prices may be abating. Low oil prices are usually thought of as a boon for the U.S. economy, and probably still are. But the growth of the fracking sector in the U.S. meant that lower oil prices were also subtracting jobs.

That’s turned the corner in August. The oil sector added 8oo jobs in August. That might not sound like a lot, and it’s not for a job market that employs nearly 145 million people. But it was the first time there was a increase in jobs in the oil industry in more than a year and the biggest increase since October 2014.

Fed Chair Alfred E. Neuman

Of course, there were still things for the Fed and other economists to be worried about in the August report: Wage grow basically stalled, and temporary services jobs, often a leading indicator for job growth in general, dropped.

But the labor force, which had been shrinking earlier in the recovery, grew once again in August by 174,000. Last August, the labor force shrunk by 54,000.

So far this year, the U.S. labor force has grown by nearly 2 million workers, that better than the roughly 1.5 million people who joined the ranks of U.S. workers in all of 2015. When more people start looking for work, that’s a good sign of optimism, and that’s key to sustained economic growth.

What’s more, Fed Chair Janet Yellen has said that based on the current increase in the workforce, all we need is an increase of 100,000 jobs a month to keep the unemployment rate below 5%. We had 50% more than that in August.

Fed officials are unlikely to be as excited about the jobs report as investors initially seemed. But they probably aren’t moping around either.

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