U.S. employers added 187,000 jobs in August despite high interest rates imposed by the Federal Reserve, suggesting the labor market remains resilient.
Job growth was up from a revised 157,000 in July, but still indicated a slowdown in the pace of hiring compared with earlier this year. The unemployment rate rose to 3.8% from 3.5%, the highest since February 2022, but still low by historical standards.
A slowing job market could help slow the economy and reassure the Fed that inflation will continue to slow. The Fed has raised interest rates 11 times in a row, helping to lower inflation from a peak of 9.1% last year to the current 3.2%. Given signs of a persistent slowdown in inflation, many economists think the Fed may decide no further rate hikes are warranted.
The Fed wants to see a slowdown in hiring, as strong demand for labor tends to drive up wages and stoke inflation. The central bank is hoping for a rare “soft landing” in which rate hikes will manage to slow hiring, borrowing and spending enough to curb high inflation without causing a deep recession.
Optimism for a soft landing has been growing. While the economy is growing at a slower rate than in the post-pandemic recession boom of 2020, it is still holding up against rising borrowing costs. Gross domestic product, or an economy’s total output of goods and services, expanded at an annual rate of 2.1% between April and June. Consumers continue to spend and businesses increase investment.
The Fed wants to see a slowdown in hiring because strong demand for workers tends to drive up wages and fuel inflation.
So far, the job market has been cooling in the least painful way — with few layoffs. The unemployment rate is expected to hold at 3.5% in August, just above a 50-year low. The U.S. Labor Department reported on Thursday that the number of Americans filing for unemployment benefits, a proxy for layoffs, fell for the third straight week.
Instead of laying off workers, companies are reducing job vacancies — 8.8 million jobs were open in July, the lowest level since March 2021. American workers are also less likely to leave their jobs in search of better pay, benefits and working conditions elsewhere: 3.5 million quit in July, the fewest departures since February 2021. Lower resignation rates tend to ease pressure on companies to raise wages to retain existing workers or attract new ones.
Economists and financial market analysts increasingly believe the Fed may not raise interest rates: Nearly nine in 10 analysts surveyed by CME Group expect the Fed to hold rates steady at its next meeting on Sept. 19-20. Interest rates are unchanged.
While the slowdown in hiring seems clear, Friday’s jobs report could be complicated. School reopenings could pose a problem for the Labor Department’s attempts to adjust hiring numbers to seasonal fluctuations: Many teachers have given up temporary summer jobs to return to the classroom.
The closure of big trucking firm Yellow and a strike by Hollywood actors and writers were seen as limiting job growth in August.