US Labor Market Shows Signs of Cooling in August

The US economy added 170,000 jobs in August, according to the latest report from the Department of Labor, released on Friday morning. This was below the median estimate of 187,000 by Refinitiv economists and marked a slowdown from the 312,000 monthly average recorded over the previous 12 months. The unemployment rate remained unchanged at 3.5%, the lowest level since 1969.

The August jobs report was closely watched by investors and policymakers as they looked for clues about the health of the labor market in the face of higher interest rates and sticky inflation. The Federal Reserve has raised its benchmark rate 11 times since December 2022 to combat rising prices, which have cooled from a peak of 9.1% in June 2022 but remain well above the Fed’s preferred 2% target.

US Labor Market Shows Signs of Cooling in August
US Labor Market Shows Signs of Cooling in August

Some analysts said the slower job growth and further moderation in wage gains could be a welcome sign for the US central bank, which has been under pressure to ease its monetary policy stance. The average hourly earnings for all employees on private nonfarm payrolls increased by 4 cents to $30.11 in August, following a 7-cent increase in July. Over the past 12 months, average hourly earnings have risen by 3.2%.

“The labor market is cooling and is taking pressure off policymakers concerned with a second wave of inflation,” said Jeffrey Roach, chief economist at LPL Financial. “Businesses should get some respite as inflation decelerates and the risk of quiet quitting dissipates.”

Some sectors face headwinds from strikes and bankruptcy

The August jobs report also reflected some sector-specific challenges that weighed on the overall hiring numbers. The ongoing actors and writers strike that has shut down most Hollywood film and television productions resulted in a loss of 14,000 jobs in the motion picture and sound recording industries. The bankruptcy of trucking giant Yellow, which filed for Chapter 11 protection in July, led to a decline of 5,000 jobs in the transportation and warehousing sector.

“We estimate that these two factors could potentially pose a cumulative drag on payrolls worth around 30,000 to 40,000 jobs in August,” said Gregory Daco, EY chief economist.

Other sectors that saw job losses in August included retail trade (-15,000), mining (-4,000), and utilities (-2,000). On the positive side, some sectors added jobs at a robust pace, such as professional and business services (+53,000), health care (+37,000), leisure and hospitality (+27,000), and construction (+16,000).

Job openings dip to lowest level since March 2021

The August jobs report came on the heels of another report that showed job openings dipped to 8.8 million at the end of July, the lowest level since March 2021. The Job Openings and Labor Turnover Survey (JOLTS), released on Wednesday by the Department of Labor, also showed that the number of hires fell by 160,000 to 6.7 million in July, while the number of quits decreased by 106,000 to 3.9 million.

The decline in job openings and resignations indicated that employees were growing less confident they could quit their jobs and find new ones amid rising uncertainty about the economic outlook. However, job openings still remained historically high, exceeding the number of unemployed workers by about 1.5 million. Before the COVID-19 pandemic began in early 2020, the highest level of job openings on record was 7.6 million.

The JOLTS data, combined with another report that showed hiring by private companies rose at the slowest pace in five months in August, painted a picture of a labor market that was finally beginning to cool after months of surprisingly solid job gains. The ADP National Employment Report, released on Thursday by payroll processor ADP and Moody’s Analytics, showed that private-sector employment increased by 163,000 jobs from July to August, well below the consensus forecast of 200,000.

“The labor market recovery is losing steam as businesses struggle to fill vacant positions and retain workers,” said Mark Zandi, chief economist at Moody’s Analytics. “The Delta variant is also having a dampening effect on hiring as businesses are reluctant to add workers amid rising infections.”

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