Olivier Douliery / AFP via Getty Images
The US job market remains unusually hot as we head into the Labor Day weekend.
Employers added 315,000 jobs in August, according to a report from the Ministry of Labor. The unemployment rate rose to 3.7% from 3.5% in July, but only because nearly 800,000 new people entered the workforce. Job gains in June and July were revised down by a total of 107,000 jobs.
Retailers, factories and healthcare all added jobs last month.
The labor market continues to shine, despite slowing economic growth and growing recession fears. Payroll employment has now surpassed pre-pandemic levels. That leaves workers with more money to spend and helps support a consumer-driven economy.
But a strong labor market is also likely to drive inflation even higher at a time when businesses have struggled to keep up with rising demand for goods and services.
Employers have added 3.5 million jobs so far this year, and they look forward to adding more. In July, the number of job openings nearly doubled because of the number of unemployed workers to fill.
Federal Reserve Chairman Jerome Powell is concerned that the mismatch could push wages — and ultimately prices — even higher.
“The labor market is exceptionally strong, but clearly out of balance, with demand for workers substantially outstripping the supply of available workers,” Powell said last week, while speaking at an economic conference in Jackson Hole, Wyoming.
The Fed is likely to get some consolation from last month’s massive influx of new workers. The number of people working or looking for work rose 786,000 in August after falling in the previous two months. The proportion of adults in the labor force rose to 62.4% last month from 62.1% in July, and the share of people aged 25-54 in the labor force rose to 82, 8%. The workforce is about 163,000 short of pre-pandemic levels.
The Fed is raising interest rates aggressively
Average wages in August rose 5.2% from a year ago – unchanged from July.
Nela Richardson, chief economist at payroll processing firm ADP, believes wage growth has begun to stall, which could ease upward pressure on prices.
“Wages have gone up but they have stabilized,” says Richardson. “And so, depending on your view – half empty or half full – [that] can be interpreted as good news for the future of inflation. “
The Federal Reserve has strong interest rate increase in an effort to reduce demand and control prices. The central bank has raised interest rates by 2.25 percentage points since March. Another rate hike of 0.5 to 0.75 percentage points is expected later this month.
Higher interest rates are affecting the housing market. The average interest rate on a 30-year fixed mortgage rose to 5.66% this week, from less than 3% a year ago. As a result, both new home construction and sales of existing homes fell.
Construction companies added just 16,000 jobs last month, down from 24,000 in July.
While some well-known businesses like Bed Bath & Beyond have announced job cuts in recent days, most employers are reluctant to lay off workers, despite signs of the economic growth weakened.
New claims for unemployment benefits – a proxy for layoffs – have fallen over the past three weeks, and claims remain very low by historical standards.
Furthermore, preliminary estimates from the Labor Department suggest employment growth for the 12 months ended March was even stronger than initially reported.
The estimate, released last week, is based on a more comprehensive tally of businesses. It shows yes 462,000 paid jobs in March than reported in the monthly survey. The final totals will be announced early next year.