August Jobs Report: U.S. Job Growth Slows From Red-Hot Pace (2024)

Job growth slowed in August but stayed solid, suggesting that rising interest rates and fear of a possible recession are leading companies to pull back on hiring — but that the labor market recovery remains resilient.

Employers added 315,000 jobs last month on a seasonally adjusted basis, the Labor Department said Friday. That was down from 526,000 in July, though it still represented a strong pace of growth.

The unemployment rate rose to 3.7 percent, from a half-century low of 3.5 percent in July. That rate only counts people who are actively looking for jobs, and the uptick came alongside a big increase in the size of the labor force — a sign that rising wages, abundant job opportunities and the receding pandemic are leading more people to look for jobs.

Economists have been saying for months that job growth was likely to slow as the economy comes down from last year’s vaccine-fueled boom and as higher borrowing costs make it harder for businesses to expand. Instead, the labor market remained red hot even as other parts of the economy, such as the housing market, turned sharply lower. The data released Friday indicated the long-delayed slowdown may finally have begun.

“It’s definitely a downshift from what we saw earlier in the year,” said Sarah House, an economist at Wells Fargo. “But step back and look at the bigger picture here. The fact that we’re still putting up gains of over 300,000 even as we’ve recovered all the jobs lost, that’s still a really impressive feat.”

Ordinarily, such a slowdown would be concerning, especially at a time when forecasters are warning of a possible recession. But in the up-is-down world of the late-pandemic economy, a modest pullback in job growth could actually be good news, albeit not for everyone.

That is because policymakers at the Federal Reserve believe that the job market is effectively overheated: With twice as many open jobs as job seekers, employers are competing for workers by pushing up wages and, ultimately, prices. The Fed is hoping that by raising interest rates, it can cool off the job market enough to bring down inflation, but not by so much that unemployment skyrockets.

“I think stability is very welcome right now for the economy,” said Michelle Meyer, chief U.S. economist for Mastercard. “If we have a glide path there, if we take these steps from 500,000 jobs to 300,000 to 200,000, that’s a better outcome than if we have a dramatic shock where suddenly next month we have negative job growth.”

There are signs the Fed’s plan may be working. The growth in the labor force should help ease the shortage of workers. Job openings have fallen from their peak last spring, wage growth has ebbed and fewer employees are quitting their jobs, an indication that competition for workers may have eased somewhat. Yet layoffs, despite a few high-profile announcements, have remained low, and employers have pared hiring plans, not abandoned them entirely.

“Yes, employer demand is cooling,” said AnnElizabeth Konkel, an economist at the career site Indeed. “In some areas, it’s cooling a little bit faster. But it’s still strong. It’s still robust.”

Still, any cool-down will have consequences for workers, who have enjoyed rare leverage in recent months. If there are fewer open jobs and employers are less eager to hire, companies might regain power, giving workers less room to demand raises, flexible schedules or other perks. Average hourly earnings rose 0.3 percent in August, a slower pace of growth than in recent months.

Job growth slowed in August and the unemployment rate rose to 3.7 percent. But the monthly employment report contains a wealth of detailed data that help paint a more complete picture of the labor market:

• The labor force participation rate, the share of adults who are working or actively looking for work, rose three tenths of a percentage point and the labor force grew by more than three-quarters of a million people. The labor force rebounded early this year as the pandemic ebbed, but progress had stalled in recent months, adding to labor shortages.

• Average hourly earnings rose 0.3 percent in August, and were up 5.2 percent from a year earlier, a slower rate of growth than in recent months. For rank-and-file workers — what the Labor Department calls “production and nonsupervisory employees” — hourly earnings were up 0.4 percent from a month earlier, and 6 percent from a year ago.

• Construction jobs rose by 16,000. The housing market has slowed sharply as interest rates have risen, but that hasn’t shown up in the labor market yet.

• Leisure and hospitality jobs grew by 31,000, continuing a recent stretch of strong hiring. But the industry still has 1.2 million fewer jobs than before the pandemic.

• Remote work because of the pandemic became less prevalent, with 6.5 percent of people with jobs saying they worked from home or outside the office in August, down from 13.4 percent a year ago. Some economists have questioned the reliability of that number because many people might still be working remotely, but might no longer cite the pandemic as the reason.

• The prime-age employment rate, covering workers ages 25 to 54, rose to 80.3 percent, just two-tenths of a percentage point below its February 2020 level.

• The unemployment rate for Black workers rose four-tenths of a percentage point, to 6.4 percent. That is exactly double the rate for white workers, which ticked up a tenth of a point to 3.2 percent. Employment fell among Black workers, while rising for white workers.

Wage growth slowed in August. That’s bad news for workers, but could be good news for policymakers at the Federal Reserve.

Average hourly earnings rose 0.3 percent in August, down from a gain of 0.5 percent in July. Over the past year, hourly earnings are up 5.2 percent.

Wages rose rapidly last year as employers struggled to fill open positions and newly empowered workers switched jobs for better pay and other benefits. Gains were particularly strong in leisure and hospitality and other service industries, where competition for workers was intense.

Pay gains in leisure and hospitality have ebbed this year, however, and now overall wage growth appears to be slowing somewhat as well.

For workers, slower wage growth will be unwelcome news at a time when pay already was failing to keep pace with inflation in many industries. But it may be some comfort to Fed officials, who have been concerned that the hot labor market is fueling inflation.

“If you want a labor market where workers have lots of choices and are able to negotiate for flexible schedules, higher wages, benefits, then you probably do want a very tight labor market where workers are still in the driver’s seat,” said AnnElizabeth Konkel, an economist at the career site Indeed. “If you are the Fed, you’re probably going to have a little bit of a different take than that, where you want employer demand to normalize.”

Still, the recent slowdown may not be enough to ease the Fed’s concerns. Over the past three months, average earnings have risen at a 4.8 percent annual rate, and are up even more for rank-and-file workers. That may be too high for policymakers who are trying to get inflation back to their 2 percent annual target.

After falling for much of the year, the U.S. labor force participation rate recovered to its pandemic-era high of 62.4 percent, though that it is still 1 percent point below its prepandemic level.

Another common measure, the prime-age employment-to-population ratio — the share of people between the ages of 25 and 54 with jobs — reached 80.3 percent in August, just two-tenths of a percent below its February 2020 peak and roughly equivalent to its level in late 2019.

The monthly rise in participation was the largest this year. Higher starting pay for jobs, especially in low-wage sectors, may be attracting more workers who might otherwise be self-employed, attend school or do informal work.

Skanda Armanath, the executive director at Employ America, a research organization, said the gains were remarkable because it took roughly a decade for that gauge to fully recover in the last expansion.

Although the economy added more jobs in August than economists had expected, the unemployment rate also ticked up to 3.7 percent. That increase is less worrying than it might appear.

“Unemployment rose for a good reason. Job seekers are returning: August had a huge surge in the civilian labor force, up 786,000.” said Andrew Flowers, a labor economist for Appcast, a firm that helps companies with recruiting. “People want to work and this is good for both workers and controlling inflation.”

The general scarcity of workers and high demand for employees has created an enduring labor shortage. That has helped job seekers by driving up wages in many sectors, though prices of many goods and services have also gone up a lot.

“Labor shortages remain acute and bringing worker demand and supply closer into better balance will be a gradual process,” said Kathy Bostjancic, the chief U.S. economist at Oxford Economics, a research firm.

This imbalance can stoke inflation, which the Federal Reserve is trying to tame with a series of interest rate increases. A further rise in borrowing costs could hurt workers who tend to be at a disadvantage in the labor market, such as Black people. The unemployment rate for Black workers rose to 6.4 percent in August, from 6 percent in July.

“Yes, people overall are returning to the American labor market, but this isn’t the case for Black people over the last few months,” said Michelle Holder, a labor economist at The John Jay School of Criminal Justice. “The Black labor force participation rate has been declining since May. The increase in the Black unemployment rate is potentially a troubling sign.”

Federal Reserve officials are likely to see the August jobs numbers as a sign their policies are working — though not that their job is done.

Policymakers are closely parsing labor market data as they try to figure out how much underlying momentum the economy has and how much they need to raise interest rates to restrain growth and lower inflation.

Fed officials have raised rates to a range of 2.25 to 2.5 percent in July from near zero in March, but they are still waiting for signs that those higher borrowing costs are cooling consumer spending and business expansions, lowering demand and giving supply a chance to catch up. So far, the evidence of a major slowdown has been spotty.

In that context, the data released on Friday was encouraging. Job growth slowed, but not by so much that it suggested a recession was imminent. The unemployment rate rose, but mostly because more people joined the labor force, which should make it easier for companies to fill open positions. Wage growth slowed.

“Overall there’s a lot to like if you’re a Fed official right now,” said Sarah House, an economist at Wells Fargo. “Hiring remains robust but on a more sustainable basis. Yes, unemployment was up, but it was for all the right reasons. We saw a surge in job seekers.”

Still, Ms. House said, one good report will not convince the Fed that it is time to back off its efforts to tame inflation.

Central bankers have been clear that they are carefully watching data on both employment and inflation — which is showing hopeful, but not yet conclusive, signs of slowing — as they decide how quickly to raise interest rates. Fed officials are contemplating an increase of either a half percentage point or three-quarters of a point at their meeting on Sept. 20-21.

Higher interest rates work to counter inflation partly by weighing on the labor market. As businesses face steeper borrowing costs, they grow less and cut back on hiring. As job opportunities dwindle, competition for workers eases and wage growth slows — reining in consumer spending. As demand wanes, companies become less able to raise prices, lowering inflation.

That process can push unemployment up and prove painful as people lose or struggle to find jobs. But Fed officials have argued that getting inflation under control is critical — and that delaying the tough choices now would only make the situation worse down the road.

Stocks fell on Friday, after a volatile day of trading as investors evaluated the latest jobs report, trying to discern the path of the economy, inflation and interest rates.

The S&P 500 fell 1 percent by the end of trading, after having climbed more than 1 percent.

The early rally came after the latest employment numbers showed that employers in the United States added 315,000 jobs in August, a slowdown in the pace of hiring but not enough of one to raise significant alarms about the economy.

The fresh numbers signal that the Federal Reserve’s plan to raise interest rates in a bid to cool the labor market, slow the U.S. economy and ease historically high inflation may be taking effect — potentially good news for investors who have worried the central bank will raise borrowing costs too quickly.

But stocks took a sharp turn downward in the afternoon, falling nearly 1 percent, after Gazprom, Russia’s state-run energy giant, announced a delay to the planned restart of a crucial gas pipeline to Germany, raising fears of an extended shutdown.

The loss caps a rough stretch for stock investors, with the index down 6.5 percent since Jerome H. Powell, the Fed chair, warned last Friday of the central bank’s “unconditional” commitment to bringing down inflation via a series of interest rate increases.

The Fed has said that a single data point like Friday’s unemployment report would not be enough to deter it from an aggressive fight against inflation. The central bank is widely expected to raise interest rates at a meeting later this month by at least half a percentage point, if not more. The latest U.S. report on consumer prices that is due before the Fed meeting could also have a big effect on expectations.

Higher interest rates also increase costs for companies, and stocks have fallen in recent days as investors have ratcheted up their bets on interest rates moving higher, following the stern warnings from the Fed.

Slowing job and wage growth, alongside rising labor force participation in August, is good news for President Biden and his hopes for a smooth transition to a more stable economic expansion.

The jobs report on Friday was the first of the summer to support the case Mr. Biden and his economic aides have been making for months: that the economy is beginning to step down from a high-growth, high-inflation expansion coming out of the pandemic recession but avoiding another recession.

The report showed the country added 315,000 jobs in August, down from 526,000 in July. The unemployment rate ticked up slightly, to 3.7 percent. That cooling is enough to support Mr. Biden’s contention, which he first laid out in a Wall Street Journal opinion piece in May, that the country is set to “see fewer record job-creation numbers, but this won’t be cause for concern.”

There were also signs in the report that inflation could be coming down, as the Federal Reserve aggressively raises interest rates in order to tame price growth that has reached a 40-year high. Average wages continued to rise, the Labor Department said, but not as quickly as in previous months. Administration officials have been hoping for the Fed’s rate increases to bring down inflation while not slamming the brakes on growth, triggering a recession and plunging millions of Americans out of work.

One of the most encouraging signs in the report for the White House was that more workers were searching for work, which could further dampen inflation. The labor force participation rate grew by 0.3 percentage points in August, matching its highest rate in the recovery from the pandemic.

But the report seems unlikely to aid Mr. Biden’s efforts to persuade many Americans that the country is not in recession, which polls suggest more than half of voters believe to be the case. The president has argued that strong job growth is a sign that the economy is nowhere near a recession, because employers generally fire workers and hire fewer people in a downturn.

Voters, though, seem less focused on the labor market. Only one in nine respondents to a poll by The Economist and YouGov said jobs reports were the best evidence of a recession. The most cited recession indicator — preferred by more than two in five respondents — was “the price of goods and services you buy.”

How are you coping with your household expenses and your financial planning? If you’re in the labor force, do you feel secure in your job, or are you having trouble finding a new or different one? If you’re a business owner, are you seeing any change in customer demand, struggling to find workers, or considering cutbacks?

Economics reporters at The New York Times would like to know.

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