August’s US Employment Data Suggests Diminished Rate of Job Additions Amid Slowing Economy

The U.S. labor market, previously overheated, is displaying signs of gradual normalization.

The Department of Labor is anticipated to announce this Friday that a total of 170,000 new jobs were created in August across various sectors — private companies, nonprofits, and government agencies, according to forecasts by analytics firm FactSet. This expected number signifies a decrease from the 187,000 jobs added in July and marks the smallest monthly increase since December of last year.

Becky Frankiewicz, the Chief Commercial Officer of ManpowerGroup, commented on the emerging trend, stating, “The labor market is transitioning toward a more temperate state. Although the demand is lessening, it is not plummeting.”

This moderation in job creation is likely to be favorably received by the Federal Reserve, which has been attempting to curb inflation through a series of 11 consecutive rate hikes. The central bank aims to engineer what is termed a “soft landing” — decelerating economic growth and employment to dampen inflation without thrusting the economy into recession. Such a feat has often been met with skepticism among economists.

However, optimism is increasing, with year-over-year inflation showing a consistent decline from a high of 9.1% in June 2022 to 3.2% in July. Despite experiencing pressure from escalating borrowing costs, the economy continues to grow at a reasonable pace. Gross Domestic Product (GDP) rose at an annualized rate of 2.1% from April to June, while consumer spending and business investments persisted.

The Federal Reserve aims for a slowdown in employment growth, as a robust labor market can exert upward pressure on wages, thereby contributing to inflationary trends.

To date, the reduction in the pace of hiring has been as unintrusive as possible, with layoffs being minimal. The unemployment rate for August is projected to remain at 3.5%, scarcely above a half-century low. Furthermore, recent data from the Labor Department indicates a consecutive three-week drop in applications for unemployment benefits, confirming the reluctance among employers to sever ties with existing staff.

Rather than reducing their workforce, companies have been cutting back on job openings, posting 8.8 million in July, the lowest since March 2021. Additionally, employees are less inclined to leave their current roles in pursuit of improved compensation and benefits: 3.5 million individuals quit their jobs in July, the lowest number since February 2021. Such a trend alleviates the need for companies to raise wages to retain or attract talent.

The growth rate of average hourly earnings has also cooled, with a projected year-over-year increase of 4.4% in August, in line with July’s figures. Nancy Vanden Houten, Lead U.S. Economist at Oxford Economics, noted that a consistent annual wage growth of around 3.5% would align with the Federal Reserve’s 2% inflation target.

In light of these developments, financial market analysts are increasingly of the view that the Federal Reserve may cease its rate-hiking policy. A recent survey by the CME Group revealed that almost 90% of analysts expect rates to remain unchanged in the upcoming Federal Reserve meeting scheduled for September 19-20.

However, the upcoming jobs report may face complicating factors. The commencement of the new school year may distort seasonal hiring statistics as educators abandon temporary summer employment to return to full-time teaching. Moreover, the closure of significant trucking firm Yellow and strikes by Hollywood writers and actors are believed to have restricted job growth for the month of August.

Frequently Asked Questions (FAQs) about August U.S. Jobs Report

More about August U.S. Jobs Report

• U.S. Department of Labor Employment Reports
• Federal Reserve Policy and Statements
• FactSet Economic Data and Analysis
• CME Group Economic Reports
• Oxford Economics Research and Analysis
• ManpowerGroup Employment Analysis
• Inflation Trends in the U.S.
• Seasonal Employment Factors
• Impact of Strikes on Employment