Today’s jobs report showed the economy added 142,000 jobs in August, far below expectations. Prior to this, monthly job growth has averaged 226,000 this year. We haven’t seen job growth this slow since December of last year. At the same time, wage growth is far below the 3.5 percent rate consistent with the Federal Reserve Board’s inflation target of 2 percent. It’s clear that Fed policymakers should abandon notions of slowing the economy.
While it’s yet to be seen whether this slower job growth is an anomaly or a new trend, these numbers should give us pause. Adding in this month’s disappointing numbers, job growth this year is still above last year’s average at this time. Job growth has averaged 215,000 jobs a month thus far in 2014, compared to 197,000 in the first eight months of 2013. We need to be consistently adding jobs at a much faster rate to return to the labor market conditions before the recession began—arguably a labor market that still had considerable slack.
The slack in the today’s labor market is best indicated by lackluster wage growth. Private sector nominal average hourly earnings grew 2.1 percent annually in August—consistent with what we’ve seen this year so far. Employers just don’t have to offer big wage increases to get and keep the workers they need, when hiring rates and net job creation remain far slower than what’s needed to for a healthy labor market.