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Don’t be fooled by lower-than-expected August jobs growth

  • The 156,000 gain in August was on the soft side, but given a well-known bias in the Bureau of Labor Statistics' estimate for the month, this number will be revised up in coming months.
  • Businesses' number one problem is quickly becoming a lack of qualified workers.
  • Indeed, unemployment, which is already a low 4.4 percent, is set to decline further. A sub-4 percent unemployment rate by this time next year is a real possibility.

The American job machine remains in high gear. The economy has been creating close to 200,000 jobs per month for going on eight years. The 156,000 gain in August was on the soft side, but given a well-known bias in the Bureau of Labor Statistics' estimate for the month, this number will be revised up in coming months.

As has been the case during this record long string of monthly job gains, the job growth in August was broad-based. Indeed, it is easier to identify the industries not adding to their pay rolls, which include brick-and-mortar retailers and print media, which are being disrupted by technology, and some manufacturers.

Tune into Closing Bell at 3 pm on Friday when Mark Zandi will be a guest.

The job gains are across all regions of the country. Even the interior of the country which was rocked by the collapse in energy, agriculture and other commodity prices a few years back, are getting back on track.

At the current pace of job growth, if sustained, unemployment and underemployment will continue to decline. The labor force is growing at most by 100,000 per month, or half the growth in jobs. With the large baby boom generation now retiring en masse, and foreign immigration slowing, gains in the labor force will slow for the foreseeable future.

"The last time the economy experienced this tight a labor market was in the technology boom and bubble around the year 2000."

This means that unemployment, which is already a low 4.4 percent, is set to decline further. A sub-4 percent unemployment rate by this time next year is a real possibility. The last time the economy experienced this tight a labor market was in the technology boom and bubble around the year 2000.

Underemployment, which includes the unemployed, part-timers who would like more hours, and people who have stopped looking for work and are not counted as unemployed but say they would take a job if they could find a suitable one, is also falling fast. It too is consistent with a tight job market.

Businesses' number one problem is quickly becoming a lack of qualified workers. The number of open job positions is already at a record high, and it is set to move much higher in coming months. Workers are taking advantage, and are quitting their existing jobs and taking new ones at a rate that is only seen in the very best of times.

Wage growth has been slow to pick-up in response to the tight job market, but it is picking-up. Average hourly earnings – one measure of wages in today's jobs report – rose 2.5 percent in August from a year ago. Just a few years ago it was closer to 1.5 percent. It's going to take a bit of time before workers realize they have real negotiating power and begin to ask for bigger pay increases. After-all, it has been a decade since the job market was last at full-employment, and many of the Millennials that joined the workforce during this time don't know how to ask for a raise.

It should be noted that Hurricane Harvey did not impact today's jobs numbers, and will likely have only a modest impact in coming months. The rebuilding effort will add to construction and other jobs, but only over time as it will take time for the insurance money and government aid to get to the storm's victims.

It will be tough to derail this strong job market anytime soon. But if anyone could do it, it is lawmakers. The Trump Administration and Congress have to quickly pass legislation to raise or suspend the Treasury debt limit and fund the government after the end of the fiscal year at the end of this month. If they simply do this, the strong job market will continue on. If they don't, then they will have blown the best job market in a generation.

Commentary by Mark M. Zandi, chief economist at Moody Analytics, a subsidiary of Moody's Corp., and a leading provider of economic research, data and analytical tools. Zandi is also a co-founder of Economy.com, which Moody's purchased in 2005. Follow him on Twitter @economics_MA.

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