The U.S. economy added jobs in August for the 20th consecutive month, but the pace of growth slowed – though perhaps not enough to deter the Federal Reserve from raising interest rates again later this month.
According to the monthly report released today by the U.S. Bureau of Labor Statistics, total nonfarm payroll employment increased by 315,000 in August, well below the revised July total of 526,000, and below the three-month average of 378,000. The increase also was just below the 318,000 predicted by economists.
The unemployment rate, meanwhile, increased to 3.7% from 3.5% in July, as both the labor force participation rate and the number of unemployed people rose from a month earlier.
The labor participation rate increased by 0.3 percentage point to 62.4%, though it is still 1 percentage point below its February 2020 level. The number of unemployed people increased by 344,000 to 6 million.
In July, these measures had returned to their levels in February 2020, before the COVID-19 pandemic.
Good Sign
First American Financial Corp.'s Deputy Chief Economist Odeta Kushi said the increase in the participation rate is a good sign.
“The prime-age labor force participation rate increased from 82.4% to 82.8%, reaching its highest point since right before the pandemic hit in February 2020, which signals that people are returning to the labor force,” Kushi said.
She noted that late July/early August pulse survey data showed that “the share of prime-age adults who reported that their reason for not working was ‘caring for children not in school/daycare’ ticked up to 17%, the highest level since July 2021. As kids return to school in the fall, this share is likely to decline. More workers in the labor force could help to narrow the gap between labor demand supply, and ultimately slow the pace of wage growth.”
Average hourly earnings for all employees on private nonfarm payrolls rose in August from a month earlier by 10 cents, or 0.3%, to $32.36, according to the report. Over the past 12 months, average hourly earnings have increased 5.2%.
Still, the labor market remains strong, Kushi said.
“The July Job Openings and Labor Turnover Survey (JOLTS) report revealed that job openings increased to 11.2 million, while hires fell to 6.4 million, indicating a continuing mismatch between labor supply (and) demand. Two jobs for every unemployed person is a sign of a tight labor market.”
Total nonfarm payroll employment has now risen by 5.8 million over the past 12 months, as the labor market continued to recover from the job losses of the pandemic-induced recession. This growth brings total nonfarm employment 240,000 higher than its pre-pandemic level in February 2020.
Notable job gains occurred in professional and business services, health care, and retail trade. Employment in financial activities rose by 17,000 in August, and by 200,000 over the past 12 months.
Employment showed little change in August in other major industries, including construction. But Kushi did see some positive signs for the housing industry.
“Residential building construction employment increased by 2,300 in August, while non-residential employment picked up by 700,” she said. “Residential building employment is up 7.7% compared with pre-pandemic levels, while non-residential building employment remains 5% below.”
“The big gains this month came from specialty trade contractors, both residential and non-residential,” she said. “This subsector consists of employers whose primary activity is performing specific activities, such as pouring concrete, site preparation, plumbing, painting, and electrical work.”
While builder confidence fell again in August due to the slowing housing market and continuing supply-chain issues, Kushi noted that multifamily construction starts were up 17% year over year in July, and that homeowners who are rate-locked in may decide to remodel instead of move.
“You need more hammers at work to build and remodel homes,” she said.
Stay The Course
Mike Fratantoni, senior vice president and chief economist for the Mortgage Bankers Association, said the August employment report fits in with other recent data showing the economy is gradually slowing.
“Coupled with other recent readings, these data indicate an economy that is still growing, but perhaps at an inflection point,” he said. “With this in mind, we expect that the Federal Reserve will stay the course with further rate hikes at upcoming meetings.”
Kushi agreed. “The Fed may feel a little sigh of relief that the super-hot labor market is showing some signs of slowing, but this report is not enough to alter the Fed’s course. The inflation data will be key to the (Federal Open Market Committee’s) decision on rates.”
The FOMC is scheduled to meet next on Sept. 20-21.
