Goldman On NPF: "Better Than Expected But Below Rate Needed To Keep Jobless Rate Stable"

Goldman's Jan Hatzius provides his summary of today's NFP number:

Better than Expected Despite Rise in Unemployment

BOTTOM LINE: Report clearly better than expected, especially in survey of establishments, though hiring remains below the rate needed to keep jobless rate stable. Unemployment rate rises as workers reenter labor force, though broadest measure of underemployment also increases. Wages rise more than expected.

KEY NUMBERS:
Nonfarm payrolls -54k in August vs. GS -125k, median forecast -105k.
Private payrolls +67k in August vs. GS flat, median forecast +40k.
Unemployment rate up 0.1pt to 9.6% in August vs. GS and median forecast 9.6%.
Average hourly earnings +0.3% in Aug (mom, +1.7% yoy) vs. GS and median forecast +0.1%.

MAIN POINTS:
1. Firms in the private sector added 67,000 workers to their payrolls in August, modestly more than the median forecast and much firmer than our anticipation of no change. Census layoffs, at 114,000 were in line with our expectations, as was the additional 7,000 drop in permanent government jobs.

2. The composition of the August job gains had offsetting surprises, as manufacturing payrolls fell 27,000 despite a high reading on the ISM's index of employment while construction jobs rose 19,000 in the face of multiple readings of weak activity in that sector. Temporary workers-a lead cyclical sector-posted a 17,000 increase in jobs. The lion's share of the gains, however, were in education and health (+45,000)-a mainstay of growth through most of this cycle.

3. Upward revisions to prior numbers added to upside surprises in this reports as 123,000 additional workers were added to the July level of total payrolls. However, only about half of this (66,000) was in the private sector.  The magnitude of this revision, coupled with better-than-expected wage increases, was enough to prompt a 2-point judgmental adjustment to our US-MAP score for nonfarm payrolls.

4. The survey of households featured a rebound of 550,000 in the labor force, split almost equally between increases in employment (290,000) and unemployment (261,000). As a result, the unemployment rate conformed to expectations, rising to a "high" 9.6% (9.642%). The rebound in the labor force was slightly less than ½ the cumulative loss registered over just the past three months. This underscores the difficulty of bringing unemployment down; if more increases are in the offing, as seems likely on trend, the trend in net hiring-perhaps best measured by private payrolls-will not prevent further increase in unemployment. Over the past three months, private payrolls have risen just 78,000 on average. And, despite last month's large increase in the labor force, the broadest "U6" measure of underemployment also went up, to 16.7% from 16.5%.

5. Wage gains were another bright spot in the report, rising 0.3% overall-more than expected by virtually all economists. That said, the year-to-year trend remains subdued, at 1.7%, and actually edged down 0.1 point from July.

6. The index of hours worked was unchanged in August, as the nonfarm workweek held steady. It is tracking into the third quarter at just short of a 2% annual rate, implying little change in productivity if our 1.5% estimate for annualized real GDP growth is on the mark.