Summer witnessed a slowdown in hiring accompanied by a rise in unemployment during August, reflecting a cooling labor market amid elevated interest rates. The latest job report, released on Friday, maintains the Federal Reserve’s course of keeping rates steady at its upcoming meeting this month. However, it leaves the debate over potential rate increases in November or December unresolved. Despite these labor market concerns, broader economic indicators reveal strength, with robust consumer spending this summer and a gradual easing of inflation.
According to the Labor Department, U.S. employers added 187,000 jobs in August, with downward revisions for June and July amounting to a combined reduction of 110,000 jobs. Over the past three months, the average monthly job gain was a modest 150,000, a decrease from the March to May average of 238,000. The unemployment rate rose from 3.5% in July to 3.8% in August, reflecting an increased number of Americans actively seeking employment.
Nevertheless, the job market remains relatively tight, leading most employers to retain their workers and offer higher wages. Average hourly earnings for workers rose by 4.3% in August compared to the previous year, slightly down from the 4.4% increase in July but well above pre-pandemic levels. An increase in working hours contributed to the most significant rise in weekly earnings since February.
Certain sectors, like transportation and warehousing, witnessed staff reductions, partly due to the shutdown of trucking company Yellow. The entertainment industry also reported job losses attributed to strike activity. Excluding these factors, payrolls showed a relatively robust increase of around 240,000 jobs, as noted by Stephen Stanley, chief U.S. economist at Santander US Capital Markets.
The Federal Reserve closely monitors employment data and other economic indicators to gauge the need for further interest rate adjustments to manage inflation and economic growth. There is ongoing debate among officials regarding the potential impact of rate hikes on the economy, with some concerned about negative repercussions while others emphasize the importance of addressing inflation.
Fed Chair Jerome Powell has hinted at the possibility of raising rates later in the year if the economy doesn’t slow sufficiently to combat inflation. Despite some signs of labor market imbalances easing, the latest job report suggests that the labor market is still softening.
Consumer spending surged in July, contributing to positive economic projections for the third quarter. S&P Global Market Intelligence estimated that the economy could grow at a 4% annual rate this quarter, significantly faster than the 2.1% pace recorded in the second quarter. However, recent payroll increases fall far short of the roughly 400,000 monthly average rise seen in 2022.
Several labor market indicators highlight ongoing tightness, including low unemployment, a high employment-to-population ratio among prime working-age adults, and wage gains that outpace inflation. Some employers are experiencing increased ease in finding workers, a trend exemplified by businesses like Reiter Technical Services in Arkansas, which has expanded its workforce amid strong demand for sawmill equipment in the construction industry.
(Source: WSJ)
