U.S. job growth improved in August, but hiring trend is slowing. What will the Fed do?
WASHINGTON — Job growth picked up in August from the sluggish pace of hiring the previous month, providing a bit of relief after a sharp slowdown earlier in the summer roiled financial markets, sparked fears of a recession and threatened to disrupt the momentum Vice President Kamala Harris and her campaign had built up.
The government said Friday that the U.S. economy added 142,000 jobs last month, led by gains in leisure and hospitality and construction businesses. Although that was a marked improvement from July, downward revisions and other data on job openings show the labor market is clearly slowing, though not falling off a cliff.
The U.S. unemployment rate dropped fractionally in August to 4.2%, but it is up from 3.7% at the start of the year.
The surge in borrowing costs hasn’t been a knockout blow for consumers and small businesses, but the pain is real and very personal.
The new report seems certain to set in concrete the Federal Reserve’s earlier indication that it will begin lowering interest rates by at least a quarter of a point this month after aggressively raising them in 2022 and last year to curb inflation.
But the latest job numbers and remarks from Fed officials reinforcing their pivot from inflation-busting to protecting jobs weren’t enough to calm nerves on Wall Street. Stocks continued their weeklong slide Friday, reflecting dimmed expectations that the Fed will make a bigger half-point cut that investors want.
August job numbers for individual states won’t be available for two weeks, but the national data suggest that California may again trail the country in job growth.
Nationally, motion pictures and the broader information sector lost some jobs, and employment in other sectors important to California, such as professional and business services and transportation and warehousing, was flat last month.
Also, California’s job numbers in the last year have been propped up by growth in two sectors — government and healthcare. But Friday’s report on U.S. employment showed healthcare adding 31,000 jobs in August, only half its average over the previous 12 months, while government showed no significant gain, said Michael Bernick, an employment attorney at Duane Morris in San Francisco and former director of the California Employment Development Department.
California’s most recent jobless rate, for July, was 5.2%, the second highest in the U.S. after Nevada.
Politically, the latest report may come as a welcome relief to Harris’ campaign. Although most voters typically make up their minds by summer of election year, July’s employment numbers and shrinking job openings, coupled with volatile stock markets, increased worries of a recession. A bad August report would have given former President Trump more talking points as they head to the final weeks before the election, including the debate next week.
It’s nail-biting time on Wall Street. Stocks had been dropping at worrisome rates for several days, but on Monday things went from concerning to panicky.
Although the economy and job market have recovered nicely since coming out of the pandemic, the Biden administration’s public standing has been badly hurt by still-high consumer prices after inflation hit a four-decade high of 9.1% in June 2022.
Inflation has come down sharply since then, to below 3%, but prices overall are still about 20% higher than before the pandemic — and that continues to weigh on consumers’ perception of the economy and Biden’s handling of it.
August job growth was slightly below the 160,000 that economists, on average, were expecting. Analysts were looking for a rebound from July’s weak performance, which was held down by temporary layoffs and the effects of Hurricane Beryl.
From June to August, the U.S. economy added 116,000 jobs a month on average. That’s down from 202,000 over the previous 12 months, according to the Bureau of Labor Statistics.
Despite the big decline in growth, most experts say that the job market isn’t melting down but gradually slowing and that the economy remains solid.
“While the labor market has clearly cooled, based on the evidence I see, I do not believe the economy is in a recession or necessarily headed for one soon,” said Christopher Waller, a Federal Reserve Board governor.
He noted that household finances remain healthy. And consumer spending, which makes up two-thirds of U.S. economic activity, has held up very well.
But other economists were not so sanguine.
Besides the slowdown in overall employment growth, the country’s underemployment rate is now at the highest since October 2021, said Sung Won Sohn, professor of finance and economics at Loyola Marymount University. The number of people employed part time due to limited work or because they were unable to find full-time jobs increased by 264,000 in August.
“The job market has been losing altitude and the Federal Reserve must take action to prevent a crash,” Sohn said.
Fed officials have not tipped their hand on the size of a coming rate cut, but many in the business community are calling for a half-point move. Scott Paul, president of the Alliance for American Manufacturing, said it’s not surprising that manufacturing employment has been down this year, falling 24,000 in August.
“The biggest factor by far has been draconian interest rates,” which he said have hurt business investments for capital equipment and damped consumer purchases of cars and houses, among other products.
“And it’s happening in an environment where the rest of the world is looking to sell and not buy,” Paul said, referring to efforts by China and other nations to export more to boost their struggling economies.
California’s manufacturing employment has fallen every month this year and is now down below the total before the pandemic. The decline has been broad-based, with makers of fabricated metal products, electronics, furniture, medical equipment and apparel all having shed jobs.
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