Hiring slowed and unemployment increased this summer—but this may mean a recession is avoidable in the near future.
- The U.S. Bureau of Labor Statistics released its unemployment report for August on Friday, showing that the economy added 187,000 jobs, less than the expected 200,000 jobs.
- Unemployment increased to 3.8% from July’s rate of 3.5%, while job force participation rose 0.2% to 62.8%, and wages grew 0.2%.
- Wednesday’s ADP jobs report similarly suggested that job growth slowed, with 177,000 new jobs added compared to July’s 371,000 jobs.
- The latest Job Openings and Labor Turnover Survey similarly shows 8.8 million new job openings in July, a 338,000 decrease from June—averaging 1.5 job openings to employees, the lowest ratio since September 2021.
- The stock market rallied to Friday’s news, with major indexes like the Dow Jones briefly rallying 200 points in response to perceived good news.
Why It’s Important
While there is a danger of increased unemployment due to the tightening labor market, Friday’s news is positive feedback for the Federal Reserve, which has spent the last 18 months hiking interest rates to uproot two years of continuing inflation issues. While inflation has reduced since its June 2022 peak of 9.1%, it did briefly spike again in July at 3.3%, above the Fed’s target of 2%—incentivizing the central bank to continue hiking rates.
Friday’s news of higher unemployment than expected could signal the Fed that its interest rates are having the desired effect of cooling the economy, allowing inflation to gradually decrease without the need for additional interest rate hikes for the last four months of the year—but it will not decide its next course of action until the September 19–20 Fed meeting.
The U.S. economy remains resilient. Unemployment has remained below 4% since December 2021 at the height of the lockdowns, where it briefly spiked to 13%. However, it does show signs of weakening. Labor Bureau statistics released Tuesday also suggest the rate of voluntarily quitting jobs is decreasing to pre-pandemic levels, suggesting workers feel less confident in the economy.
Friday’s job statistics may reflect both the cooling of the economy and a notable uptake in higher job participation than prior months, with more unemployed employees seeking jobs than before.
“We have a slower economy, and that is weighing on job growth, but it’s still pretty strong. That is going to be the key to a soft landing because consumers aren’t going to cut back in a massive way and retrench if we continue to have net job growth,” Wilmington Trust Investment Advisor economist Luke Tilley tells The Wall Street Journal.
“We’re seeing the soft landing that the market has been looking for. The market is reacting exactly as everyone anticipated it would; it’s rallying on the news that things are slowing down, which is good news,” says Yardeni Research President Ed Yardeni to CNBC’s Squark on the Street.
“This month’s numbers are consistent with the pace of job creation before the pandemic. After two years of exceptional gains tied to the recovery, we’re moving toward more sustainable growth in pay and employment as the economic effects of the pandemic recede,” says ADP economist Nela Richardson.