Growth in U.S. non-farm payrolls was a bit softer in August than the booming employment growth posted in the prior two months. There has been much focus over the past week on this August payroll growth slowdown and what it means for the timing of the next Federal Reserve (Fed) interest rate hike. My take: The weaker-than-expected growth makes more sense alongside today’s corporate profits and economic fundamentals than the unsustainable hot pace of prior months, and the deceleration does make a December policy rate hike more probable than a September one.
But I believe too much attention is paid to the timing of rate policy change, and I see a more interesting phenomenon occurring in the current labor market recovery: A dramatic shift away from employment in traditional and goods-producing sectors toward employment in services sectors. Goods-producing sectors of employment are experiencing a precipitous decline in jobs, while services jobs have seen strong gains.
The changing composition of the labor market was evident in the August jobs report, which showed the longstanding trend continues apace. See the chart below.
We saw a 24,000 decline in goods-producing jobs last month, while services gained 150,000 (the government sector made up the difference). In other words, we are not only watching a labor market heal from a massive financial crisis and recession (nearly eight million jobs have been created over the past three years), we are also witnessing a reordering of the labor market due to the impact of technological change.
Changing job market reflects changing economy
The shift is reflective of a broader transition of the U.S. economy from a goods-producing engine to a service sector and technology powerhouse. Consumers today are increasingly eschewing goods purchases in favor of services and experiential consumption, one factor behind the shifting employment landscape. Growth in services spending has ballooned rapidly since around 1980, while goods purchasing has grown more modestly. In contrast, four decades ago, personal consumption expenditures (PCE) were divided roughly evenly between income spent on physical goods and that spent on services.
Bottom line: The August jobs report isn’t likely to majorly sway the Fed from its path toward interest rate normalization, but it’s more important to focus on the bigger-picture economic shifts evident in the data.
Courtesy of Rick Rieder, Managing Director, is BlackRock’s Chief Investment Officer of Global Fixed Income and is a regular contributor to The BlackRock Blog.This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of September 2016 and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This post may contain “forward-looking" information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this post is at the sole discretion of the reader. ©2016 BlackRock, Inc. All rights reserved. iSHARES and BLACKROCK are registered trademarks of BlackRock, Inc., or its subsidiaries. All other marks are the property of their respective owners. USR-10223
© EconMatters All Rights Reserved | Facebook | Twitter | YouTube | Email Digest | Kindle