The US economy added 187,000 jobs in August, beating expectations and indicating that the labor market is still recovering from the pandemic. However, the unemployment rate rose to 3.8%, the highest level since May, as more people entered the workforce.
Job Growth Surpasses Forecasts
Economists had predicted a gain of 170,000 jobs in August, but the actual figure was higher, reflecting the resilience of the US economy amid the surge of the Delta variant and the ongoing supply chain disruptions. The job growth was broad-based, with gains in leisure and hospitality, professional and business services, transportation and warehousing, and education and health services.
The August payroll number also surpassed the revised figures for June and July, which were lowered by a combined 110,000 jobs. The average monthly job growth for the past three months was 150,000, down from 238,000 in the previous three months.
Unemployment Rate Rises as More People Join the Labor Force
The unemployment rate increased from 3.5% in July to 3.8% in August, the biggest one-month jump since May. However, this was not necessarily a bad sign, as it reflected an increase in labor force participation, which rose to 63.2%, the highest level since March 2020.
The increase in labor force participation suggests that more people are optimistic about finding work and are actively looking for jobs. Some of them may have been lured back into the labor market by higher wages, enhanced unemployment benefits, or improved health conditions.
However, not all of them were able to find jobs right away, which pushed up the unemployment rate. The number of unemployed people rose by 508,000 to 6.2 million in August. The labor force participation rate is still below its pre-pandemic level of 63.4%, indicating that there is still room for improvement.
Wage Growth Moderates but Remains Strong
Average hourly earnings rose by 0.4% in August, slightly lower than the 0.5% increase in July. However, on a year-over-year basis, wages were up by 4.3%, well above the inflation rate of 3.6%. This suggests that workers are still benefiting from strong demand for labor and tight supply of workers.
Some sectors saw higher wage growth than others, reflecting the varying impact of the pandemic and the recovery. For example, leisure and hospitality workers saw their wages rise by 1.3% in August and by 10.3% over the past year, as employers competed for workers to meet the surge in consumer spending on travel and entertainment.
However, other sectors saw slower wage growth or even declines, such as information (-0.4%), financial activities (-0.1%), and government (0%). These sectors may have been less affected by the pandemic or have more stable labor supply.
Fed Likely to Stay on Hold in September
The August jobs report is unlikely to change the Federal Reserve’s plans to keep interest rates near zero and continue its bond-buying program until the economy makes further progress towards its goals of maximum employment and stable inflation.
Fed Chair Jerome Powell said in a recent speech that the labor market’s rebalancing “remains incomplete” and that he wanted to see a “reasonably good” September jobs report before considering tapering the Fed’s asset purchases.
The Fed’s next policy meeting is scheduled for September 21-22, when it will update its economic projections and provide more guidance on its future actions.