- Non-farm payrolls increased by 187,000 in August, topping estimates of 170,000. The June and July calculations were revised marginally.
- However, the unemployment rate stood at 3.8%, significantly higher than July and the highest since February 2022. The “real” unemployment rate rose to 7.1%.
- The health care sector saw the largest increase with an increase of 71,000. The other leaders were leisure and hospitality, social assistance and construction.
- Average hourly earnings rose 0.2% for the month and 4.3% from a year ago, both slightly below forecasts.
The unemployment rate rose sharply in August as the job market braced for a recession as the summer of 2023 approached.
The US Bureau of Labor Statistics reported on Friday that non-farm payrolls increased by a seasonally-adjusted 187,000 for the month, beating Dow Jones’ estimate of 170,000.
However, the unemployment rate stood at 3.8%, significantly higher than July and the highest since February 2022, and non-farm payrolls estimates for previous months showed a sharp decline. This increase in the unemployment level came as the labor force participation rate increased to 62.8%, the highest since February 2020, just before the announcement of the COVID pandemic. The total labor force size increased by 736,000.
A more comprehensive unemployment measure that counts discouraged workers as well as those working part-time for economic reasons rose to 7.1%, an increase of 0.4 percentage points and the most since May 2022.
Average hourly earnings rose 0.2% for the month and 4.3% from a year ago. Both were below the respective forecasts of 0.3% and 4.4% and are another possible sign that inflationary pressures are easing. Working hours increased to 34.4.
“The US labor market continues to come back down to earth, but from a very high peak,” said Nick Bunker, head of economic research at the Indeed Hiring Lab. “The labor market was booming last year and is now approaching marathon pace. Welcome a downturn; it’s the only way to go the distance.”
The health care sector saw the largest increase with an increase of 71,000. Other leaders were leisure and hospitality (40,000), social assistance (26,000), and construction (22,000).
The Yellow Trucking bankruptcy resulted in a 34,000 loss in transportation and warehousing and a 15,000 loss in information.
While non-farm payrolls growth continued to beat expectations, last month’s count was revised down significantly.
The July estimate dropped from 30,000 to 157,000. June fell from 80,000 to 105,000, the smallest monthly gain since December 2020.
“The broad message here appears to be that we are nearing full employment, with supply and demand coming into greater balance,” Stephen Juno, U.S. economist at Bank of America, said in a client note. “Gains are concentrated in backward areas. The rest of the labor market is probably at full employment.”
The unprecedented increase in the unemployment rate occurred as the number of unemployed rose to 514,000. The household number of employed people increased by 222,000. Most of the jobs came from the private sector, with the government contributing only 8,000.
According to Goldman Sachs, the Hollywood writers’ strike and the Yellow Trucking bankruptcy combined reduced payroll numbers by 50,000.
When it comes to tracking the jobs number closely, August is often one of the most volatile months of the year and can see sharp revisions afterward. While there was little change in the initial estimate and final count in 2022, the figure for 2021 more than doubled in the final count.
The August jobs reading comes at a critical time as Federal Reserve officials seek to set the future course for monetary policy.
Markets widely expect the Fed to skip rate hikes at its September 19-20 meeting. However, market valuations still point to around 38% probability of a final hike in Oct-Nov 31. According to CME Group data, 1 meeting.
“The report is more or less in line with Fed expectations,” said Dan Greenhaus, chief economist and strategist at Solus Alternative Asset Management. “The labor market continues to be slow and loose, even taking into account strike activity, and I don’t think this report will change the Fed narrative.”
Goldman Sachs said the payrolls number helped confirm the company’s forecast that the Fed is likely to hike rates later in the cycle. Through a series of 11 increases, the central bank has taken its key lending rate from near zero to a target range of 5.25%-5.5%.
Recent data paint a mixed picture of where the economy is headed, with overall growth holding steady as consumers continue to spend, but the labor market starting to recover from historically tight conditions.
For example, job openings fell to 8.83 million in July. This is still well above where they were before the Covid pandemic, but is the lowest level since March 2021. This equates to 1.5 vacancies for every worker considered unemployed by the BLS.
At the same time, inflation has shown signs of softening, although it remains well above the level Fed policymakers feel comfortable with.
The Commerce Department reported earlier this week that personal consumption expenditure prices, the Fed’s favorite inflation gauge, rose only 0.2% in July. That equates to a 3.3% 12-month gain, or 4.2% excluding food and energy – the “core” level the Fed believes is a better measure of long-term inflation.
Consumer spending was strong during the month, rising 0.6% when adjusted for inflation, although real disposable personal income fell 0.2%. Households are using credit cards and savings to compensate, as the personal savings rate fell to 3.5% in July, down significantly from 4.3% in June.
The department also reported that gross domestic product grew at an annual rate of 2.1% for the second quarter, a level that is still above what the Fed considers trend growth for the US economy but below the initial 2.4% estimate.
However, the Atlanta Fed is tracking third quarter GDP growth at a strong 5.6% pace. It contradicts long-standing expectations that the economy is likely to enter at least a shallow recession after an aggressive Fed interest rate hike.
Source: www.cnbc.com
