America’s employers slowed their hiring last month, compared to the previous month. However, business still added a healthy number of jobs while still slowing job growth enough to potentially help the Federal Reserve in its fight to reduce raging inflation.
The economy gained 315,000 jobs in August, a still-solid figure that pointed to an economy that remains resilient despite rising interest rates, high inflation and sluggish consumer spending. Friday’s report from the government also showed that the unemployment rate rose to 3.7%, up from a half-century low of 3.5%. Yet that increase was also an encouraging sign: It reflected a long-awaited rise in the number of Americans who came off the sidelines and started looking for work.
“It’s a very positive report and still holds open the possibility for a soft landing,” said Ellen Gaske, an economist at PGIM Fixed Income, referring to the Fed’s goal of slowing the economy enough to cool inflation without going so far as to cause a recession.
Prices are rising at nearly the fastest pace in 40 years, which has handed congressional Republicans a hammer to use against Democrats in the fall congressional elections. Texas Republican Rep. Kevin Brady noted Friday that rising wages aren’t keeping up with inflation, leaving Americans with “shrinking paychecks.”
The White House, in turn, has claimed credit for a robust pace of job growth. On Friday, Brian Deese, a top economic adviser to Biden, said in an interview on CNBC that the economy is shifting to a more sustainable path.
“We want to see a transition from a very strong economy to one of stable growth,” he said.
The August hiring gain was down from 526,000 jobs added in July, and it fell below the average gain of the previous three months. Wage growth also weakened a bit last month, which could also serve the Fed’s inflation fight. Average hourly pay rose 0.3% from the previous month, the smallest gain since April. Businesses typically pass the cost of higher wages on to their customers through higher prices, thereby fueling inflation.
Gaske suggested that the figures could allow the Fed to raise its benchmark short-term interest rate by a half-percentage point at its next meeting later this month, rather than by three-quarters of a point, as many Wall Street traders and some economists have expected. When the Fed increases its rate, it leads over time to higher rates on mortgages, auto loans and business borrowing and can weaken the economy.
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The Fed is rapidly raising interest rates to try to cool hiring and wage growth, which have been consistently strong. Fed officials hope that by raising borrowing costs across the economy, they can reduce inflation from a near-40-year high. Some economists fear, though, that the Fed is tightening credit so aggressively that it will eventually tip the economy into recession.
Most industries added workers last month, with the biggest increases in professional and business services, which gained 68,000 jobs. That sector includes architects, engineers and some tech workers. Health care added 61,500 jobs, retailers 44,000.
Job openings remain high and the pace of layoffs low, indicating that most businesses still want to hire. The broadest measure of the economy’s output — gross domestic product — has shrunk for two straight quarters, meeting one informal definition of a recession. Yet another measure, focused on incomes, indicates the economy expanded in the first half of the year, albeit slowly.
Chair Jerome Powell, in a high-profile speech last week, made clear that to curb inflation, the Fed was prepared to continue raising short-term interest rates for the foreseeable future and to keep them elevated. Powell warned that the Fed’s inflation fight would likely cause pain for Americans in the form of a weaker economy and job losses.
The Fed chair also said the job market is “clearly out of balance,” with demand for workers “substantially exceeding” the available supply. Friday’s jobs figures and a report earlier this week that the number of job openings rose in July after three months of declines, suggested that the Fed’s rate hikes so far haven’t restored any such balance. There are roughly two advertised job openings for every unemployed worker.
The central bank has raised its short-term rate to a range of 2.25% to 2.5% this year, after the fastest series of increases since it began using its short-term rate to influence the economy in the early 1990s. It has projected that its key rate will reach a range of 3.25% to 3.5% by year’s end. Those rate hikes have made borrowing and spending steadily more expensive for individuals and businesses. The housing market, in particular, has been weakened by higher loan rates.
Wages are rising at their fastest pace in decades as employers scramble to fill jobs at a time when fewer Americans are working or seeking work in the aftermath of the pandemic. Average hourly pay jumped 5.2% in July from a year earlier. Still, that was less than the 5.6% year-over-year in March, which was the largest annual increase in 15 years of records outside of the spring of 2020, when the pandemic struck.
Some skeptics warn that the Fed may be focusing excessively on the strength of the job market when other indicators indicate that the economy is noticeably weakening. Consumer spending, for example, and manufacturing have slowed. The central bank might raise rates too far as a result, to the point where it causes a deeper recession than might be needed to conquer inflation.
The economic picture is highly uncertain, with the healthy pace of hiring and low unemployment at odds with the government’s estimate that the economy shrank in the first six months of this year, which is one informal definition of a recession.
Yet a related measure of the economy’s growth, which focuses on incomes, shows that it is still expanding, if at a weak pace.
So far, the Fed’s rate hikes have severely dented the housing market. With the average rate on a 30-year mortgage reaching 5.66% last week — double the level of a year ago — sales of existing homes have fallen for six straight months.
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Consumers have moderated their spending in the face of much higher prices, though they spent more in July even after adjusting for inflation.
But companies’ investment in new equipment has slowed, indicating they have an increasingly cautious outlook on the economy.
The Associated Press contributed to this article.