Updated Sept. 1, 2023
Employers added 187000 jobs last month, wages rose 4.3 % from year earlier.
By guest author Gwynn Guilford from the Wall Street Journal. Nick Timiraos contributed to this article.
Hiring cooled this summer and unemployment rose in August, signs the labour market is moderating in the face of high interest rates.
U.S. employers added 187000 jobs last month, while payrolls in June and July were revised down a combined 110000, the Labour Department said Friday. The monthly gain in August was well less than the average pace over the prior year, and far below the roughly 400000 average monthly gain in 2022.
The unemployment rate was 3.8 % last month, up from 3.5 % in July. Workers’ average hourly earnings rose 4.3 % in August from a year earlier, slower than last year but well above the prepandemic pace.
Healthcare, leisure and hospitality, social assistance, and construction establishments increased their hiring, while employers in transportation and warehousing cut staff.
The Federal Reserve is closely watching the labour market. Fed Chair Jerome Powell signalled on Aug. 25 that the central bank could hold rates steady at its September policy meeting, but kept the door open to raising them in coming months if the economy doesn’t weaken more. Inflation is down sharply from its June 2022 peak, but Fed officials have said that resurgent economic activity and elevated wage gains could keep it from returning to their 2 % target.
Falling demand for workers that loosens the labor market without triggering mass layoffs is the ideal outcome for the economy, said Luke Tilley, chief economist at Wilmington Trust Investment Advisors.
“We have a slower economy, and that is weighing on job growth, but it’s still pretty strong,” he said before the data release. “That is going to be the key to a soft landing, because consumers aren’t going to cut back in a massive way and retrench if we continue to have net job growth.” A soft landing is the outcome in which the economy cools enough to control inflation without plunging into a recession.
Demand for workers moderating
Employment gains recently returned to a more sustainable pace. But which employers are adding workers varies markedly compared with broader gains when the economy was first emerging from the pandemic recession.
Healthcare, construction and social-services employers have hired this year at a relatively strong pace, as have industries that haven’t yet fully recovered the jobs lost during the pandemic shutdowns, including restaurants, child-care services and education. Meanwhile, factory head counts have stagnated, while employment at tech-heavy information companies is down this year.
Other evidence points to softening labor demand. In July, employers advertised fewer job openings, bringing vacancies to the lowest level since March 2021, though they remain higher than prepandemic levels. The share of workers who were new hires fell to its lowest rate since April 2020.
Mixed signals from wages
Wages have outpaced inflation in recent months, a boost to purchasing power that has helped keep economic growth stronger than expected at the start of the year.
This development is good for households, after two years of inflation eating away at living standards, as well as for the economy, because consumer outlays account for two-thirds of economic activity. But the rebound in inflation-adjusted wages might add to the central bank’s challenges. Powell indicated recently that getting inflation down will likely require a stretch of below-trend economic growth.
The share of employed adults in their prime working years is the highest in more than two decades. Photo: Anthony Reite
Wage growth is higher than the average rate before the pandemic and above the 3.5 % rate that Fed officials and many economists think is compatible with 2 % inflation.
“Wages have certainly slowed…but the degree of slowing we’ve seen is just achingly gradual,” said Jonathan Millar, senior U.S. economist at Barclays. “We’ve not seen enough slowing.”
Cooling wage growth from the unprecedented highs seen last year is evidence of weakening worker bargaining power as demand for labor comes more closely in line with supply. Other measures are flashing similar signs: The quits rate, which some economists see as a signal of wage pressures, fell back to the 2019 average in July, down from the record highs hit in 2021 and 2022.
Help still wanted
Other measures signal that the labor market remains unusually tight.
Unemployment is trending near a 50-year low, and the share of employed adults in their prime working years of 25 to 54 is the highest in more than 20 years. Labor-force participation rates for this group are above the pre-Covid level. But labour-force participation overall has yet to recover, largely because of retirements during the pandemic.
If job gains slow because there simply aren’t enough people to hire—and not because of falling demand for workers—wage and price pressures might stay elevated and complicate the soft-landing scenario.