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Surprising August Job Growth
In August, there was an unexpected increase in appointments because despite high interest rates and inflation, employers added 187,000 jobs, but there was a rapid revision in payroll gains in the summer.
The Labor Department said on Friday that the unemployment rate, calculated by a separate survey of households, increased from 3.5% to 3.8%, the highest since February 2022. This is largely due to an increase in the labor force as people working and looking for jobs are included.
Economists surveyed by Bloomberg had estimated 168,000 jobs were added. However, payroll growth was revised down by less than 110,000 for June and July, which paints a much weaker picture of job growth in the summer compared to earlier. And August’s job gains were expected to be influenced by several unusual crosscurrents, making it difficult to understand whether the latest numbers reflect overall hiring trends or one-off factors.
Nick Bunker, the economic research director at Indeed Hiring Lab, says, “The American labor market is steadily returning to Earth.” The nation added more than 400,000 jobs in a single month last year as it recovered 22 million jobs lost in the pandemic.
What’s the current wage growth rate?
The average hourly earnings increased by 8 cents to $33.82, causing annual income to decline from 4.4% to 4.3%. This is good news from the Federal Reserve’s perspective, as it is aggressively raising interest rates to slow down the labor market and lower annual wage growth in line with its 2% overall inflation target. Wage growth stayed above 5% last year amid a severe COVID-related labor shortage.
The Fed is debating whether to raise rates again this month or keep its key rate stable at 5%, the highest level in 22 years.
Diane Swonk, the chief economist at Pantheon Macroeconomics, says, “This report clearly does not add pressure on the Fed to hike rates this month. We think the Fed is done.”
What’s the labor force participation rate?
Another development that will slow wage growth: the participation rate for working or job-seeking Americans unexpectedly increased from 62.6% to 62.8%, the highest since before the pandemic’s 63.3%, as 736,000 people entered the labor market. A large labor pool makes it easier for employers to find workers without having to offer significant wage hikes.
The labor force participation rate had remained stable for five months, and economists believed that those who had left the workforce due to COVID were not returning in large numbers. Meanwhile, about 10,000 baby boomers are reaching retirement age each day, limiting the supply of workers in the long run.
Recent gains in labor force participation suggest that the return of workers to the labor force after the health crisis may still be ongoing. “I think there’s still room to grow,” says Jen Ots, president of WorkingNation, a non-profit organization that raises awareness about challenges facing American workers and is a former chief of staff for the Labor Department’s Employment and Training Administration.
She says many former employees who left due to COVID “are realizing now that they have an opportunity to come back to work. And many will need to return for financial reasons.”
Which industries are seeing the most job growth right now?
In August, healthcare added 71,000 jobs. Leisure and hospitality, including bars and restaurants, added 40,000 jobs, a recent improvement but still significantly below pre-COVID levels, as the industry has rebounded from the pandemic. It is still 290,000 jobs below its pre-COVID level.
Construction added 22,000 jobs, and professional and business services added 19,000 jobs.
Transportation and warehousing shed 34,000 jobs, reflecting a pause in trucking amid a recent downturn in the shipping industry.
What factors are impacting the job market?
Goldman Sachs had predicted that the strike by Hollywood writers and actors last month would lead to an 18,000-job reduction, and the halt in yellow trucking meant a loss of 8,000 other non-union jobs (union workers continued to receive paychecks).
CMPI’s chief economist, Diane Swonk, says Los Angeles, New York, and Chicago, where the film and TV production is dependent on restaurants and hotels, faced weakened sales and job losses due to the strik
Goldman also said that August job growth was weaker than expected and that subsequent revisions showed the initial estimate of the rebound to be too low by nearly 40,000 jobs.
Goldman says that, at the same time, the July job report was weaker than expected and other labor market surveys did not capture the pronounced summer hiring slowdown. Weather-related payroll gains in August could indicate a rebound in employment.
Indeed, Barclays predicted that job creation increased by 200,000 in the last month.
Is the American job market growing?
Overall, job growth has slowed down in 2023, with the monthly average falling from 312,000 at the beginning of the year to about 200,000 recently. Economists say that industries affected by the pandemic, especially those related to COVID-19 measures like restaurants and bars, have seen most of the job cuts.
Moreover, high inflation and the Federal Reserve’s aggressive interest rate hikes have had an impact on employment, especially in rate-sensitive industries like technology, housing, and finance.
The Fed is welcoming the slowdown in hiring that helps alleviate the shortage of workers who have been in short supply due to the prolonged COVID-19 crisis. Labor said this week that employers posted 8.8 million job openings in July, down from 9.2 million last month and the fewest since March 2021.However, it has not decreased considerably from pre-pandemic levels.
Nevertheless, for staffing firms, “it feels like the beginning of a slowdown,” says Jim McCoy, senior vice president at ManpowerGroup, a leading employment firm.”We’re seeing fewer orders compared to what we typically see.”
Are companies starting to lay off employees?
While there has been a slight decrease in hiring, layoffs have historically been low. Companies struggling to find candidates for jobs are hesitant to cut staff, which is helping prevent a dramatic decline in job growth.
McCoy says, “The shortage of structural workers will keep employment elevated.”