The monthly employment report suggested that the Federal Reserve might be able to tame inflation without causing a recession.
By guest author Ben Casselman from the New York Times. Ben Casselman writes about economics, with a particular focus on stories involving data. He previously reported for FiveThirtyEight and The Wall Street Journal.
Jim Tankersley contributed reporting.
Sept. 2, 2022
Job growth slowed in August but remained strong, offering fresh hope that policymakers will be able to bring down inflation without causing a recession.
Officials at the Federal Reserve are walking a tightrope. They want to cool off a labor market they see as too hot, with too many jobs and not enough workers to fill them. But if they go too far, they could undo the progress of the past two years and leave millions of people out of work.
Government data released on Friday suggests that the Fed has managed to maintain its balance as its has raised interest rates this year, though its work is far from done.
Employers added 315000 jobs last month, the Labor Department said — a substantial slowdown from the more than half a million added in July but still a solid number. The labor force grew by more than three-quarters of a million people, which should ease concerns about a shortage of workers. Wage growth cooled.
“Overall, there’s a lot to like if you’re a Fed official right now,” said Sarah House, an economist at Wells Fargo. “Hiring remains robust but on a more sustainable basis.”
Economists have been saying for months that job growth was likely to slow as the economy comes down from last year’s vaccine-fueled boom and as higher borrowing costs make it harder for businesses to expand. Instead, the labor market has remained red hot even as other parts of the economy, such as the housing market, have slowed sharply.
The data released on Friday indicated that the long-delayed slowdown might finally have begun. The Labor Department also revised down its estimate for hiring in June.
The central bank is still all but certain to raise interest rates at its meeting this month, probably by at least half a percentage point and perhaps by three-quarters of a point. That decision may rest on what happened to consumer prices in August; that data is scheduled to be released on Sept. 13, a week before the Fed’s meeting.
Economists say policymakers’ path to a so-called soft landing remains narrow, depending in part on factors beyond the Fed’s control, such as the price of oil. But a narrow path is better than no path at all.
“I think stability is very welcome right now for the economy,” said Michelle Meyer, the chief U.S. economist for Mastercard. “If we have a glide path there, if we take these steps from 500000 jobs to 300000 to 200000, that’s a better outcome than if we have a dramatic shock where suddenly next month we have negative job growth.”
The report is good news for President Biden, who on Friday hailed the combination of strong job growth and cooling inflation as a sign that the economy was finding its footing after months of uncertainty.
“Jobs are up, wages are up, people are back to work. And we’re seeing some signs that inflation may be — may be, I’m not over promising — may be beginning to ease,” Mr. Biden said at the White House. Coupled with falling gas prices, he said, “America has some really good news going into Labour Day weekend.”
The unemployment rate edged up in August, to 3.7 % from a five-decade low of 3.5 % in July. That increase was partly the result of more people re-entering the labor market to look for work, but it also reflected a modest rise in the number of people losing jobs. In recent weeks, Ford, Snap and other companies have announced job cuts, although layoffs across the economy remain low.
“We’re all waiting for the significant drop, the free fall, but that is not what we’re seeing,” said Becky Frankiewicz, the North American president for Manpower Group, a global staffing agency. “As employment slows down in one industry, it picks up in another industry.”
Raddish Kids, an e-commerce cooking club for children, saw business soar during the pandemic as schools shut down and families became stuck at home. More recently, however, sales have slowed as the pandemic has ebbed and as inflation has forced customers to rethink how they spend money. This summer, the company laid off several of its roughly 25 employees, the first job cuts in its seven-year history.
“Unfortunately, as the demand and sales volumes pulled back, we had to account for that,” said Seth Barnes, who owns the company with his wife, Samantha. “We’re a little more comfortable saying, let’s be conservative, let’s hope for a good holiday, but let’s not overextend ourselves, whereas the past two years we were more like, let’s just go for it.”
But other companies see opportunities for growth.
Tyler Boynton expanded his oral surgery practice during the pandemic, buying a practice in Napa, Calif., to supplement his office in Sonoma. It was a gamble — he bought the business in August 2020, when many people were still avoiding the dentist — but one that paid off as the pandemic ebbed and demand rebounded.
For months, Mr. Boynton’s biggest challenge has been finding enough workers. In a single week this year, six people didn’t show up for scheduled interviews. But that has changed. He has hired three people in the past two weeks, and is looking for more.
“In the last month, we’ve had more qualified applicants than we’ve had in the last eight years,” he said. “I don’t know where these people are coming from — they’re just coming out of the woodwork.”
Inflation may be pulling more people back to work as they struggle with the rising cost of living. And headlines about layoffs and a possible recession may be spurring some people to return to work while they can. A recent survey conducted by the career site ZipRecruiter found that job seekers were feeling less confident about their searches, and were putting more importance on job security than on flexibility.
“People are spending down that pandemic nest egg a little more quickly than they expected because of rising prices, and now feel a bit more nervous and a bit more desperate to find a job,” said Julia Pollak, the chief economist at ZipRecruiter.
Slower wage growth is good news for the Fed but not for workers, who have already seen their pay fall behind inflation. Average hourly earnings rose 0.3 percent in August, down from a gain of 0.5 percent in July. Hourly earnings were up 5.2 percent from August 2021.
Economists warn that any cool-down in the labor market will mean less bargaining power for employees, particularly those on the bottom rungs of the career ladder. Wage growth soared last year for people working in restaurants, hotels and other service areas, but those gains have slowed significantly. The unemployment rate for Black workers rose sharply in August, to 6.4 percent, double the rate for white workers.
“If you want a labour market where workers have lots of choices and are able to negotiate for flexible schedules, higher wages, benefits, then you probably do want a very tight labor market where workers are still in the driver’s seat,” said Ann Elizabeth Konkel, an economist at the career site Indeed. “If you are the Fed, you’re probably going to have a little bit of a different take than that, where you want employer demand to normalise.”
Job gains were broad in August, with retailers, manufacturers and even the struggling construction industry adding jobs. Economists said that reflected the underlying strength of the recovery: Companies and consumers alike may be pessimistic about the outlook, but as long as sales remain strong, employers will keep hiring.
“The question is: When does that turn?” Ms. Meyer, of Mastercard, said. “It will turn when you see that shift in their bottom line, which really hasn’t happened yet for the majority of industries out there.”
“For today,” she added, “they still have sales, so they still need people.”
A version of this article appears in print on Sept. 3, 2022, Section A, Page 1 of the New York edition with the headline: Hot Job Growth Cools And Raises Economic Hopes.