In addition to the revised 526,000 new jobs added in July, the labor market in the United States astounded economists in August with a gain of 315,000 new positions.
While the figures exceeded economists’ anticipations, the country’s unemployment rate rose from 3.5% to 3.7%. According to a Bureau of Labor Statistics report, the rate increased because many people entered the labor market in the post-pandemic era in search of work.
Meanwhile, inflation drove interest rates to new highs. The Fed will meet later this month to assess the interest rates it will levy on the country, and the seemingly favorable August report may spur the entity to lower rates.
The Fed, on the other hand, does not like the labor market’s vigor at the current time. The economy is already slowing, as evidenced by the relatively slow sales pace in several sectors, such as housing, which has become highly unstable in recent months. Moreover, the labor market is “clearly out of balance,” stated Fed Chairman Jerome Powell, “with demand for workers substantially exceeding the supply of available workers.”
The report on the August labor market
According to the Bureau of Labor Statistics, the proportion of jobs to job applicants was 2:1 last week. This is explained by the number of job openings for applicants, which managed to reach 11.2 million in July, increasing over 700,000 increase from June.
“We have a calm center and lots of conflicting factors swirling around. But effectively, what we’re seeing is that in spite of rising rates and supply chain issues that continue to plague [businesses], the jobs market is robust. There’s a lot of pent-up demand for employees,” stated Manpower Group senior vice president Jim McCoy.
August saw a significant increase in monthly employment in the professional and business services and health care sectors. The former added 68,000 jobs, while the latter increased by 48,000. With the new figures in place, the United States gains an average of 438,000 jobs per month.
“I think it’s reasonable to expect that we will not keep that pace up between now and the end of the year,” Bankrate senior economic analyst Mark Hamrick stated. “I think that we may well have seen the low for unemployment during this cycle.”
The Feds’ objectives
This year’s monthly average is higher than the pre-pandemic era’s. However, Boston College’s Brian Bethune believes the Feds will accept the numbers in the August report.
“I don’t think the Fed wants to see things suddenly decelerate, nor do they want to see things move at too rapid of a rate for the economy to adjust,” Bethune asserted. “What the Fed wants is the Goldilocks economy. They want it to be moving along at a steady pace — but not too fast; not too hot, not too cold.”
Bethune argued that having more workers meant easing the constraints placed on goods and services, particularly those that are labor intensive.
“If the Fed goes and drives through the stop sign [by overcorrecting and spurring a recession], and we get a reduction in employment as a result, then we’re going to get a reduction in supply — really not the right path to go at all,” added the professor.
Aside from job availability and its connection to the number of job seekers, the Fed is considering other factors, one of which is wage growth. According to Powell, continuous pay rises can only help prolong inflation.
“This is, no doubt, a welcome development for the Fed, but we shouldn’t see this as a sign of an imminent Fed pivot toward looser monetary policy,” EY chief economist Gregory Daco said.
Daco projected that based on the current market situations, as well as other aspects that the Feds are closely monitoring, its authorities might add a total of 50 basis points during its meeting later this month.