By By Gwynn Guilford
The labor market in the United States showed signs of moderation in August, with hiring cooling off and unemployment on the rise. This shift comes in the face of high interest rates, which have had an impact on businesses.
According to the Labor Department, U.S. employers added 187,000 jobs last month. However, this figure is lower than the average pace seen over the past year and substantially below the average monthly gain of 400,000 observed in 2022. Additionally, the payrolls for June and July underwent downward revisions totaling 110,000.
In terms of unemployment, the rate increased to 3.8% in August from 3.5% in July. Despite this rise, workers’ average hourly earnings saw a year-on-year increase of 4.3% in August, which is slower than last year but still higher than the pace seen before the pandemic.
Looking at specific sectors, healthcare, leisure and hospitality, social assistance, and construction establishments experienced increased hiring. On the other hand, employers in transportation and warehousing made staff cuts.
Given these developments, the Federal Reserve is closely monitoring the labor market. Fed Chair Jerome Powell indicated on August 25 that the central bank could maintain steady interest rates at its September policy meeting. However, he also kept the possibility of future rate increases open if the economy doesn’t show signs of further weakness. Although inflation has decreased significantly since its peak in June 2022, Fed officials are concerned that a resurgence in economic activity and elevated wage gains could prevent it from returning to their desired 2% target.
Luke Tilley, Chief Economist at Wilmington Trust Investment Advisors, believes that a loosening labor market without mass layoffs is the ideal outcome for the economy. He stated, “We have a slower economy, and that is weighing on job growth, but it’s still pretty strong. That is going to be the key to a soft landing, because consumers aren’t going to cut back in a massive way and retrench if we continue to have net job growth.” A soft landing refers to an outcome in which the economy cools down enough to control inflation without plunging into a full-blown recession.
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