Washington — Employers in America increased hiring somewhat in August after hiring at a slow pace in July, and the unemployment rate decreased for the first time since March, indicating that the labor market is still strong even though it may be cooling.
The Labor Department stated Friday that employers increased employment by a paltry 142,000, compared to a meager 89,000 in July. After reaching its highest level in over three years in July, the jobless rate decreased slightly to 4.2 percent. However, hiring in June and July was drastically reduced by a total of 86,000. The smallest job gain since the pandemic occurred in July.
According to Raymond James Financial chief economist Eugenio Aleman, “the labor market is weakening.” “It is deteriorating, but it is not disintegrating.”
With inflation gradually returning to its aim of 2 percent, the cooling jobs data highlight the reasons the Fed will lower its key interest rate at its next meeting on September 17–18. The question of how much of a rate drop the Fed will announce is raised by Friday’s mixed jobs report. It may choose to lower its benchmark rate by a half-point more than usual or by a normal quarter-point. At its next meetings in the upcoming months, the officials will also determine how much and how quickly to lower rates.
In a speech on Friday, prominent Fed policymaker Christopher Waller hinted that the central bank is inclined to cut interest rates by a quarter point this month. However, he would not rule out further rate decreases later this year, if needed. In a speech at the University of Notre Dame, Waller stated, “I do not expect this first cut to be the last.” “A series of reductions will probably be appropriate, as the labor market is moderating and inflation and employment are close to our longer-run goals.”
Regarding the scope and rate of cuts, he continued, “I am open-minded and will be based on what the data tell us about the evolution of the economy.”
When taken as a whole, Friday’s numbers show that the labor market is still expanding but is slowing due to the impact of high interest rates. A lot of companies seem to be delaying hiring, partly due to uncertainty about the presidential election outcome and the Fed’s pace of lowering its benchmark rate in the upcoming months.
Some of the information in the August jobs report, according to Daniel Zhao, head economist at the career website Glassdoor, suggests that companies are becoming less in need of workers. Americans who currently work part-time but would prefer full-time employment increased, continuing a trend that began a year ago.
According to Zhao, “numbers looking under the hood confirm that the job market is on that cooling trajectory.”
The current state of the American labor market is unique: traditionally, layoffs have been minimal and jobholders are largely safe. However, finding a job has gotten more difficult as hiring has slowed.
Hiring has decreased significantly over the last three months, from an average of 211,000 per month a year ago to just 116,000 each month. Additionally, August’s employment growth was concentrated in a small number of industries: construction added 34,000 jobs, restaurants, hotels, and entertainment added 46,000, and health care added 44,000 jobs. Continued increases in consumer spending, which increased last month even after accounting for inflation, may be the reason for restaurants’ and hotels’ steady hiring.
Chair Jerome Powell implied in a significant speech last month that the Fed’s policymakers don’t want to see the labor market deteriorate any more because they have essentially controlled inflation with high interest rates. The goal of the central bank’s “soft landing” strategy is to bring inflation down to its target level from a peak of 9.1 percent in 2022 without triggering a recession. Lower borrowing prices for a variety of consumer and corporate loans, such as credit cards, auto loans, and mortgages, will eventually result from a lower Fed benchmark rate.
Although Americans are much less likely to abandon their employment now than they were shortly after the economy recovered from the pandemic, businesses are currently posting fewer job postings and hiring fewer people. Employees are more likely to leave in a thriving job market, typically in search of better-paying positions. Reductions in quits indicate that fewer positions are becoming available for unemployed individuals.
Many businesses are delaying new investments and hiring due to uncertainties around the presidential election and the Fed’s next steps, according to Becky Frankiewicz, North American president of the staffing agency ManpowerGroup.
She remarked, “The entire world is watching to see what happens with our election.” “We have a fantastic waiting game. Nobody wants to take significant action just yet.
However, according to Frankiewicz, the labor market seems to remain steady at the moment.
“We’re not seeing a rocket ship, and the bottom isn’t falling out,” she stated. “It’s stability.”
The Fed’s policymakers are now more concerned with maintaining the strength of the labor market than with fighting inflation because slower hiring is sometimes a sign of layoffs.
Because of the conflicting recent economic data, the jobs report—one of the government’s most thorough economic snapshots—has become even more important. Each month, the Labor Department gathers employment data by surveying around 60,000 households, 119,000 businesses, and government entities.
According to the Fed’s Beige Book, which compiles anecdotes from the 12 regional Fed banks, many companies seemed to have tightened their hiring standards in July and August. Additionally, according to a Conference Board study conducted in August, the percentage of Americans who believe it is difficult to obtain work has been increasing, a pattern that has frequently been linked to a higher unemployment rate.
Meanwhile, July saw a robust increase in consumer spending, which is the main engine of economic growth in the US. Additionally, the economy expanded at a strong yearly rate of 3 percent during the April–June quarter.
