U.S. Labor Market Tightens Further

The report released today provides more evidence that the labor market is tightening rapidly. The unemployment rate dropped to 5.1 percent in August, as a result of a large drop in the number of unemployed and a flat labor-force participation rate that has yet to recover. It is therefore not surprising to see average hourly earnings accelerate in recent months.

Job growth in August was somewhat disappointing at just 173,000, but the upward revisions to June and July suggest it is too early to conclude that the US economy is experiencing a moderation in job growth. Given that the labor force is barely growing at all, current job growth rates will continue to rapidly lower the unemployment rate to below 5 percent by year’s end.

The job losses in oil-related industries are too small to impact the national unemployment rate, but most oil-producing states are experiencing rising unemployment rates this year. The modest decline in manufacturing jobs may reflect some headwinds from the global slowdown, but could also signal that productivity increases may finally be setting in.

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