The U.S. economy showed signs of cooling in August, with the labor market reporting moderate job growth and a sharp uptick in the number of people out of work.
Some 187,000 jobs were added in August, and the unemployment rate rose from 3.5% to 3.8%, the U.S. Bureau of Labor Statistics reported on Friday.
The sectors that saw positive job growth during the month include healthcare (+71,000), leisure and hospitality (+40,000), social assistance (+26,000), and construction (+22,000). The transportation and warehousing (-34,000) and information (-15,000) sectors lost jobs during the month.
Although employers continued their hiring streak in August, the unemployment rate unexpectedly jumped to 3.8%, and the number of unemployed persons rose by 514,000 to 6.4 million, up from 3.7% and 6 million a year earlier, respectively.
In addition to the sharp jump in unemployment, monthly payroll data for June and July received downward revisions, amounting to 110,000 fewer jobs than previously reported.
“The change in total nonfarm payroll employment for June was revised down by 80,000, from +185,000 to +105,000, and the change for July was revised down by 30,000, from +187,000 to +157,000,” the Labor Department said in its report.
According to Ben Ayers, senior economist at Nationwide, the revised jobs numbers and a higher unemployment rate in August indicate a strong labor market undergoing a controlled cooldown.
“Sharp downside revisions to job gains in 2023 and a higher unemployment rate take some steam out of the labor picture,” Ayers claimed, Fox Business reported. “But it’s still a good market for workers with plentiful job openings and continued wage gains, prompting more to jump back into the workforce.”
As for wage growth — a key measure of inflation — the report shows that average hourly earnings rose by 8 cents, or 0.2 %, in August, marking a 4.3% increase over the past 12 months.
The slower job growth mixed with a jump in unemployment and easing wage growth is likely a welcome sign for the Federal Reserve, which has struggled to get a handle on nagging inflation while attempting to steer the economy into a soft landing.
“The Fed couldn’t hope for a better report in their fight against inflation,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, per Fox Business. “Wages are down slightly, and the unemployment rate ticked up, both of which are signs that wage pressures and an overheated job market are subsiding.”
Federal Reserve officials are scheduled to meet September 19-20 to determine where to take U.S. monetary policy next. Since the U.S. Central Bank began its tightening cycle in March 2022, Federal Reserve officials have approved 11 rate increases, bringing the Fed’s benchmark rate from near 0 during the COVID-19 pandemic to a range between 5.25% and 5.5%, its highest level since 2001.
With inflation seeing its first 12-month increase in July after more than a year and recent economic data coming in line with what the Fed is looking for, all eyes are on the upcoming meeting.
“I think the Fed’s job is harder now than it was when inflation was higher, ironically,” said ADP Chief Economist Nela Richardson, Yahoo Finance reported.
“When inflation was at 9% and 8%, there was really only one direction to go, which was to hike rates. Now that we’re getting inflation that is much lower but still about double the rate on core that the Fed would like to see, their decision point is much trickier now,” she said.
Fed futures as of market close on Friday were pricing in a 93% probability of a rate pause in September with a 7% chance of a quarter-percentage-point increase, according to CME FedWatch Tool, which tracks the probabilities of changes to the Fed rate and U.S. monetary policy.
