The short answer is no, we should not be worried. It is true that the August employment report produced a disappointing job gain of 142,000 compared to widespread expectations the gain would exceed 200,000. There was also a 31,000 downward revision in the payroll gain in June while July was revised up by 3000 jobs.

The private sector added 134,000 jobs during August while the government added 8000 jobs. The manufacturing sector added no jobs despite a very robust ISM report for the month. Homebuilding helped to produce a 20,000 gain in construction employment. Business services added only 112,000 jobs despite the fact that the non-manufacturing ISM index for employment rose to 57.1 from 56.0. The retailing sector lost 8000 jobs. The unemployment rate dipped back to 6.1% because 64,000 people left the labor force. The gain in the household measure of employment was only 16,000 compared to 131,000 in July and 407,000 in June.

My conclusions:

Average hourly earnings rose 0.25% compared to 0.1% in July. This suggests that wage growth during the third quarter could average 2.5%, the fastest pace so far in this recovery.

The August employment report is unlikely to lead to any changes in monetary policy. The slowdown in job creation will reassure the doves that the labor market still has plenty of slack. The uptick in wages will confirm the hawks’ perceptions that the labor market has tightened enough to generate upward pressure on pay. The Fed’s Beige Book also had numerous references to labor scarcity.

The August report follows six months in which job gains exceeded 200,000, so it clearly calls into question economists’ perceptions of the economy’s underlying strength. But several other indicators, such as the ISM surveys, auto sales, housing starts, and capital goods orders have been so robust that the consensus will continue to project output growth exceeding 3.0% during the third quarter.