“US Adds 187,000 Jobs in August, Labor Market Shows Signs of Moderation”
In August, employers in the United States expanded their payrolls by 187,000 jobs, indicating that the labor market remains robust but is beginning to slow down. This figure represents an improvement over the revised addition of 157,000 jobs in July but still suggests a moderation in hiring compared to the rapid gains seen in the previous year and earlier in the current year. Over the period from June to August, the economy added 449,000 jobs, marking the lowest three-month total in three years. Furthermore, the government revised downward the gains for both June and July, reducing them by a combined 110,000.
The report from the Labor Department also revealed that the unemployment rate increased from 3.5% to 3.8%, the highest level since February 2022, although it remains low historically. Importantly, this increase occurred for a positive reason: 736,000 individuals entered the job market in August, the largest influx since January, and not all of them immediately secured employment. It’s worth noting that only individuals actively seeking employment are counted as unemployed.
The labor force participation rate, which measures the proportion of Americans with jobs or actively looking for one, reached 62.8% in August, the highest level since February 2020, before the COVID-19 pandemic struck the U.S. economy.
The deceleration in the job market could potentially help transition the economy into a lower gear and provide reassurance to the Federal Reserve that inflation will continue to ease. The central bank’s string of 11 interest rate hikes has contributed to reducing inflation from its peak of 9.1% last year to 3.2% currently. Given signs of slowing inflation, many economists believe that the Fed may decide that further rate hikes are unnecessary.
The report also showed that wage growth is tapering off, which may serve as an indicator to the Fed that inflation pressures are subsiding. Average hourly wages increased by 0.2% from July to August, marking the smallest gain in a year and a half. On a year-over-year basis, wages in August were up 4.3%, slightly below the 4.4% increases observed in both July and June.
The Federal Reserve aims to slow down hiring as strong labor demand tends to inflate wages, potentially fueling inflation. The central bank is aiming for a rare “soft landing,” where its rate hikes will effectively moderate hiring, borrowing, and spending to control high inflation without causing a severe economic downturn.
Gus Faucher, Chief Economist at PNC Financial Services Group, stated that the August jobs report aligns with what the Fed desires to see, indicating that it could be a path toward a soft landing. However, he cautioned that the economy might not have fully absorbed the impact of the Fed’s rate hikes, which is why he still anticipates a recession in early 2024.
Economists noted that the healthcare industry saw the most significant hiring gain in August, adding 97,000 jobs, which is relatively independent of economic fluctuations. Other sectors, such as construction, manufacturing, and bars/restaurants, also posted positive hiring figures.
In contrast, the trucking industry shed 37,000 jobs, primarily due to the closure of the Yellow trucking company, while music and movie companies lost 17,000 jobs, attributed to striking Hollywood actors and writers.
Overall, some economists view the report as a sign of the economy returning to its pre-COVID state, resembling conditions before the pandemic recession hit in 2020, followed by a strong economic recovery.
Optimism regarding a soft landing has been increasing, with the economy, though growing more slowly than during the post-pandemic boom, defying the squeeze of rising borrowing costs. The Gross Domestic Product (GDP) rose at a respectable 2.1% annual rate from April to June, and consumer spending and business investments have continued.
Analysts and financial market experts are increasingly speculating that the Federal Reserve may have concluded its rate-hiking cycle, with approximately 90% of analysts surveyed by the CME Group expecting the Fed to leave interest rates unchanged at its upcoming meeting on September 19-20.
