By Andrew Moran
The U.S. economy added 187,000 new jobs in August, topping the consensus estimate of 170,000 and marking the third-weakest jobs report under President Joe Biden, according to the Bureau of Labor Statistics (BLS).
Employment gains were revised down again as the change for July was adjusted down by 30,000 to 157,000. Jobs were also adjusted for June by 80,000 to 105,000 (the initial estimate was 209,000), making it the worst jobs report since December 2020. From January to July, the number of downward revisions has totaled 355,000.
The unemployment rate climbed to 3.8 percent last month, up from 3.5 percent in July. This also matched the market forecast.
Annual average hourly earnings eased to 4.3 percent, down from 4.4 percent, and matched economists’ expectations. On a month-over-month basis, average hourly earnings rose 0.2 percent, down from 0.4 percent.
The labor force participation rate edged up to 62.8 percent, and average weekly hours inched higher to 34.4.
Three sectors contributed most of the employment gains: healthcare (71,000), leisure and hospitality (40,000), and social assistance (26,000). Transportation and warehousing declined by 34,000, while information employment shed 15,000 workers.
Government payrolls climbed by 8,000 and the manufacturing industry added 16,000 positions.
Full-time jobs fell by 85,000, but part-time positions increased by 32,000. The number of people employed part-time for economic reasons was roughly flat at 4.2 million. The number of people working two or more jobs remained above 8 million in August. The number of individuals unemployed for less than 5 weeks and jobless for 27 weeks or more rose to 2.2 million and 1.3 million, respectively. The long-term unemployment represented more than 20 percent of all jobless individuals.
Financial markets celebrated the unexpected increase in the unemployment rate in pre-market trading, with investors thinking that the surprise jump would prevent the Federal Reserve from raising interest rates.
“Taken at face value, the U.S. August #jobs report increases the probability that the highly data-dependent Fed will not hike again in this cycle,” wrote economist Mohamed El-Erian on X, previously known as Twitter. “Markets will like all this. It’s mixed for the economy.”
Bryce Doty, the senior vice president and senior portfolio manager at Sit Investment Associates, believes the unexpected jump in the jobless rate “will steal the show.”
“Unemployment jumping from 3.5% to 3.8% takes pressure off the Fed,” Mr. Doty wrote in a note.
“The broader trend of declining savings is driving a strong growth in the workforce which is reduces inflation pressures.”
Heading Into the Jobs Report
A plethora of employment data points this week supported concerns that the labor market is cooling.
The number of job openings in July fell to 8.827 million, down from 9.165 million in June and below the market estimate of 9.465 million. This is the first time that job openings were below 9 million since March 2021 and represented the third consecutive monthly decline.
Job quits edged lower, sliding by 253,000 to 3.549 million in June. This was the lowest reading since February 2021.
Layoffs surged in August as U.S.-based firms announced 75,151 job cuts, the largest figure in three months, according to a report published by Challenger, Gray & Christmas, Inc. In the first eight months of 2023, there have been more than 557,000 layoffs.
“Job openings are falling, and American workers are more reluctant to leave their positions right now. The job market is resetting after the pandemic and post-pandemic hiring frenzy,” said Andrew Challenger, senior vice president of the employment firm, in a statement.
ADP reported (pdf) that private U.S. businesses hired 177,000 employees in August, the smallest total in five months.
This could be a sign that the national economy is returning to the way it was before the coronavirus pandemic, says Nela Richardson, the chief economist at ADP.
“After two years of exceptional gains tied to the recovery, we’re moving toward more sustainable growth in pay and employment as the economic effects of the pandemic recede,” said. Ms. Richardson.
Initial jobless claims eased (pdf), totaling 228,000 for the week ending Aug. 26. This was down from the previous week’s 232,000 and below the consensus estimate of 235,000. Continuing jobless claims increased to 1.725 million, while the four-week average was roughly unchanged at 237,500.
Impact on the Federal Reserve
The latest labor data might prove to be good news for the Federal Reserve.
Speaking at the central bank’s annual Jackson Hole economic symposium on Aug. 26, Fed Chair Jerome Powell noted that softer labor market conditions are needed to achieve the institution’s 2 percent inflation target rate.
“Reducing inflation is likely to require a sustained period of below-trend growth. Moreover, there will very likely be some softening of labor market conditions,” Mr. Powell said in his keynote address. “While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”
He also warned that the Fed could raise interest rates because inflation remains “too high.”
Despite the Fed’s preferred inflation indicator—the personal consumption (PCE) price index—rising to 3.3 percent, the futures market is still expecting a rate pause at the September Federal Open Market Committee (FOMC) policy meeting, according to the CME FedWatch Tool. This would leave the target benchmark fed funds rate in a range of 5.25 percent and 5.50 percent.
A blend of modest jobs growth and a substantial increase in the unemployment rate shows that the Federal Reserve’s work is done, says James Knightley, the chief international economist at ING.
“With inflation set to continue slowing, the Fed is surely not hiking interest rates in September and is unlikely to do so in November either,” Mr. Knightley wrote in a note. “We continue to believe that US interest rates have peaked and the next move will be a cut. We are currently forecasting that to happen in March 2024.”
The rate-setting Committee is scheduled to hold its next two-day policy meeting on Sept. 19 and 20.
