Hiring unexpectedly picked up in August as employers added 187,000 jobs despite high interest rates and inflation but payroll gains over the summer were revised down sharply.
The unemployment rate, which is calculated from a separate survey of households, rose from 3.5% to 3.8%, highest since February 2022, the Labor Department said Friday. That’s mostly because of a surge of Americans into the labor force, which includes people working and looking for jobs.
Economists surveyed by Bloomberg had estimated that 168,000 jobs were added.
Yet payroll growth for June and July was revised down by a whopping 110,000, portraying a much weaker picture of employment growth over the summer than previously thought. And job gains in August were expected to be affected by several unusual crosscurrents, making it tough to discern if the latest numbers reflect overall hiring trends or one-offs.
“The U.S. labor market continues to come back to earth,” says Nick Bunker, head of economic research for the Indeed Hiring Lab. The nation added an outsize 400,000 jobs a month last year as it recouped the 22 million jobs lost in the pandemic.
What is the current wage growth rate?
Average hourly earnings rose 8 cents to $33.82, pushing down the yearly to increase 4.3% from 4.4%. That’s good news from the perspective of the Federal Reserve, which has been aggressively hiking interest rates to slow the labor market and tamp down annual pay increases to 3.5% to align with its 2% overall inflation target. Wage growth topped 5% last year amid severe COVID-related labor shortages.
The Fed is weighing whether to raise rates again this month or hold them steady after lifting its key rate to a 22-year high of 5.25% to 5%.
“This report clearly increases the pressure on the Fed not to hike this month,” says Ian Shepherdson, chief economist of Pantheon Macroeconomics. “We remain of the view that the Fed is done.”
What is the labor force participation rate?
Another development that should slow pay increases: The share of Americans working or job hunting unexpectedly rose from 62.6% to 62.8%, highest since the pre-pandemic level of 63.3%, as 736,000 people streamed into the labor market. A larger labor pool makes it easier for employers to find workers without bidding up pay substantially.
The labor force participation rate had flatlined for five months and economists believed the big return to the labor market of people who had quit because of COVID was petering out. Meanwhile, about 10,000 baby boomers a day are reaching retirement age, limiting the supply of workers over the long term.
Last month’s rise in participation shows the shift of workers back into the labor force after the health crisis may still have some legs.
“I think it still has room to grow,” says Jane Oates, president of WorkingNation, a nonprofit that raises awareness about the challenges facing U.S. workers and former head of the Labor Department’s employment and training division.
She said many older workers who retired during COVID “now realize that they have an opportunity to come back to work. And many have to come back financially.”
What industries are seeing the most growth in jobs right now?
In August, health care led the job gains with 71,000. Leisure and hospitality, which includes bars and restaurants, added 40,000, a pickup from recent months but well below the pace over the past couple of years as the industry recovered from the pandemic. It remains 290,000 jobs below its pre-COVID level.
Construction added 22,000 jobs and professional and business services, 19,000.
Transportation and warehousing lost 34,000 jobs, largely reflecting the shutdown of Yellow Trucking amid a recent downturn in the freight industry.
What are the factors affecting the job market?
Strikes by Hollywood writers and actors were likely to reduce employment by 18,000 workers last month, and the closure of Yellow Trucking meant another 8,000 non-union job losses, Goldman Sachs said. (Union employees continued to receive paychecks for the time being).
Restaurants and hotels that rely on movie and TV production in cities such as Los Angeles, New York and Chicago faced weaker sales and employment because of the strikes, says KMPG Chief Economist Diane Swonk.
Also, over the past decade, initial estimates of August job gains have tended to be low and revised up sharply later, Goldman said. The research firm expected that issue to curtail job growth by about 40,000.
At the same time, the July jobs report was weaker than anticipated and didn’t capture the summer hiring surge reflected in other labor market surveys, Goldman said. Those seasonal payroll gains may have shown up in August, boosting employment.
Barclays, in fact, estimated that job creation accelerated to 200,000 last month.
Is the U.S. job market growing?
More broadly, job growth has gradually cooled in 2023 from a monthly average of 312,000 early in the year to about 200,000 more recently. Much of the pandemic-related catch-up hiring, particularly in industries hit hard by COVID, such as restaurants and bars, has faded, economists say.
And high inflation and the Federal Reserve’s aggressive interest rate hikes to fight it have taken some toll on employment, especially in rate-sensitive industries like tech, housing and finance.
The Fed almost certainly welcomes a slowdown in hiring to ease lingering COVID-related worker shortages that could be fueling strong wage growth and inflation.
Employers posted 8.8 million job openings in July, down from 9.2 million the prior month and lowest since March 2021, Labor said this week. But that’s still higher than pre-pandemic levels.
For the staffing industry, though, “This feels like the beginning of a recession,” says Jim McCoy, senior vice president of ManpowerGroup, a leading employment firm. “We are generally seeing order volume lighter than it has been.”
Are companies starting to lay off employees?
Yet while hiring is losing some steam, layoffs remain historically low. Companies that struggled to find job candidates are reluctant to cut staffers, helping keep job growth from pulling back dramatically.
“Structural worker shortages will continue to keep employment high,” McCoy says.
