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The August NFP reading turned out to be a disappointment, as the U.S. economy added only 173,000 jobs during the month instead of the projected 225,000 increase. But is the labor situation as dismal as the headline figures suggest? Take a look at these underlying components of the employment report that actually showed progress.

1. Huge improvement in jobless rate

Even though Uncle Sam reported fewer than usual hiring gains for August, the jobless rate still managed to make a notable improvement from 5.3% to 5.1%. That’s its lowest level since the dark days of the financial recession in April 2008!

This means that the U.S. economy has been able to achieve what the folks over at the Federal Reserve call full employment, which spans a range of 5.0% to 5.2% in joblessness. This also reflects a steady pace of declines from the 6.1% unemployment rate in the same month a year ago.

2. Participation rate unchanged

Now if you’re thinking that the decline in the jobless rate was simply spurred by a large drop in the participation rate, think again! The labor force participation rate remained unchanged at 62.6% for the third month in a row, suggesting that working-age Americans are more or less keeping up their job hunt instead of giving up.

This spells positive prospects for jobs growth in the coming months and is also indicative of confidence in the economy. If the U.S. is able to sustain its economic developments, more job opportunities could become available to a larger share of the labor force later on.

3. Positive revisions in previous data

Perhaps the biggest factors that spurred the impressive drop in unemployment were the upgrades in the previous NFP readings. The July figure was revised from the initially reported 215,000 increase to 245,000 while the June reading was upgraded from 223,000 to 231,000 – contributing an additional 38,000 in hiring gains.

4. Stronger increase in wages

The cherry on top of the August jobs report was the stronger than expected 0.3% rise in average hourly earnings, beating expectations of a mere 0.2% uptick. The survey also revealed that employees clocked in longer hours during the workweek, possibly adding to their overtime pay.

While some economic analysts say that the wage gains are still feeble, these add up to larger incomes and potentially higher consumer spending down the line. In turn, the increase in demand could lead businesses to ramp up their production and eventually hire more workers, resulting to even more employment gains.

Judging from the reaction of U.S. equities and the forex movement of the U.S. dollar after the actual jobs figures were released, it looks like market participants think that the August report was good… but not good enough to convince the Fed to hike interest rates in their policy decision this month.

US Dollar Index 15-min Chart
US Dollar Index 15-min Chart

Just as in the earlier NFP release, the U.S. dollar had a volatile initial reaction to the report before profit-taking took place ahead of the long weekend. U.S. stock indices also ended the day lower, with the S&P 500 recording a 1.5% loss on Friday and the DJIA chalking up a 1.7% decline. The Greenback gapped lower against most of its forex peers at the start of this week, as investors seem hesitant to hold on to the U.S. currency before the September FOMC statement.