Connect with us

Jobs

August jobs report: Economy added disappointing 142,000 jobs as unemployment fell to 4.2%

Published

4 months ago

on

August jobs report: Economy added disappointing 142,000 jobs as unemployment fell to 4.2%

play

U.S. employers added a disappointing 142,000 jobs in August as hiring bounced back only partly after temporary hurdles curtailed payroll gains the previous month and sparked recession fears.

And employment gains for June and July were revised down sharply, portraying an even weaker picture of the labor market in early summer. The report, along with the downward revisions, may prompt the Federal Reserve to lower its key interest rate more sharply at a meeting later this month, some economists said.

The unemployment rate, which is calculated from a separate survey of households, fell from 4.3% to 4.2%, the Labor Department said Friday.

Economists surveyed by Bloomberg previously estimated 163,000 jobs were added last month.

Payroll gains were revised from 179,000 to 118,000 in June and from 114,000 to 89,000 in July, underscoring that the labor market may be cooling more rapidly than economists anticipated.

How fast are wages growing?

Average hourly pay rose 14 cents to $35.21, pushing up the yearly increase from 3.6% to 3.8%.   

Wage growth generally has slowed as pandemic-related worker shortages have eased. Economists have said yearly pay increases need to drop to 3.5% to align with the Federal Reserve’s 2% inflation goal.

But Nancy Vanden Houten of Oxford Economics said strong gains in productivity – or output per worker – the past few years means wages gains as high as 4% could be consistent with the Fed’s inflation target. That’s because more profitable firms could absorb the added labor cost instead of passing it along to consumers.

How much is the Fed expected to cut rates in September?

The report could lead the Fed to cut its key interest rate by half a percentage point at a meeting later this month rather than an expected quarter point, though it may be a close call and experts are divided.

Before the report was released, some forecasters said it likely would take job gains of under 100,000, possibly along with a rising unemployment rate, to prod the Fed to reduce rates more substantially. But the downward revisions to June and July depict a more dramatically cooling labor market than previously believed.

Paul Ashworth of Capital Economics said the report “was probably just enough” to keep the Fed on track to cut its benchmark rate by a quarter point but “the labor market is clearly experiencing a marked slowdown.”

But Seema Shah, chief global strategist of Principal Asset Management said, “On balance, with inflation pressures subdued, there is no reason for the Fed not to err on the side of caution and frontload rate cuts.”

In 2022 and 2023, the Fed hiked its key rate from near zero to a 23-high of 5.25% to 5.5% to fight inflation. But after reaching a 40-year high of 9.1% in mid-2022, inflation is nearing the Fed’s 2% goal and Fed Chair Jerome Powell has said officials are just as focused on supporting a flagging labor market.

Which industries are adding jobs?

Leisure and hospitality led the August job gains, with 46,000. Construction added 34,000 jobs; health care, 31,000; the public sector, especially local government, 24,000; and  social assistance, 13,000.

But professional and business services added just 8,000. And manufacturing lost 24,000 while retail shed 11,000.

What is the current state of the labor market?

Most forecasters expected job growth to rebound substantially after one-off factors dampened hiring in July. Hurricane Beryl slammed into Texas and spawned dozens of tornadoes in other states. Extreme heat, especially in California, also could have crimped payroll gains, Goldman Sachs wrote in a research note. About 436,000 people said they weren’t at work due to bad weather.

And annual summer auto plant shutdowns occurred later than usual year, making it difficult for Labor Department officials to seasonally adjust the figures to mitigate their effects, said economist Michael Reid of RBC Capital Markets.

All told, the weather effects and the plant closures could have reduced employment by about 60,000 in July, Morgan Stanley and Goldman Sachs estimated, and the reversal of their impacts may have boosted payrolls by a similar total last month.

Another wild card: It’s challenging for Labor Department officials to seasonally adjust the August numbers to account for returning school teachers and departing summer employees in industries like restaurants, hotels and amusement parks. That’s because the timing of the start of the school year can vary, economist Nancy Vanden Houten of Oxford Economics said. As a result, officials may understate or overstate employment totals in their initial estimates.

Is the job market cooling off?

But employment growth overall has been slowing as catch-up effects following the pandemic fade and the Fed’s high interest rates to fight inflation take a growing toll on business hiring and investment.

As a result, forecasters acknowledged the risk that the labor market may be cooling more than the Fed would like to bring down inflation and the anticipated August rebound may not have played out. Job openings fell to 7.7 million in July, a separate report this week showed, the lowest since January 2021 and a sign that a further hiring pullback lies ahead.

Average monthly job growth will likely fall to about 100,000 by early next year, Moody’s Analytics estimates.

How does the Sahm rule work?

Although unemployment has jumped about half a percent the past year, suggesting the U.S. may already be in recession based on a time-tested rule, forecasters have downplayed the concern. They note that most of the rising jobless rate can be traced to a surge of people, especially immigrants, into the workforce – which includes those working and job-hunting – rather than layoffs.

Van Houten, however, said rising unemployment can still batter the economy even if it’s not caused by layoffs. The drop in hiring means it takes unemployed people longer to find jobs and they typically reduce their spending, causing businesses to further pare back hiring or lay off workers.

Related Topics:
Continue Reading