All eyes were on the US labor market, and the latest check-up shows its diagnosis was not as bleak as some feared: Job growth returned to solid form in August, and unemployment trended back down after a concerning jump.
Employers added an estimated 142,000 jobs last month, marking stronger growth than July’s worrisome low number — which was revised down from 114,000 to 89,000 — according to data released Friday by the Bureau of Labor Statistics.
The unemployment rate dropped to 4.2% from 4.3%.
Economists were expecting a net gain of 160,000 jobs and for the unemployment rate to fall to 4.2%, according to FactSet consensus estimates.
With inflation pretty much tamed and moderating as expected, the Federal Reserve has turned its focus to the labor market (the other part of its dual mandate). Job growth has been slowing, but there were indications that the labor market was weakening under the weight of 23-year-high interest rates.
“This just confirms that the employment market is weakening, but the sky is not falling,” Eugenio Alemán, chief economist at Raymond James, told CNN. “So, there is no rush for the Fed to make a desperate move [and make a half-point] rate cut, but I think they can go with a [quarter-point] cut.”
August’s total lands in line with the job growth seen during the past three months. But is markedly lower than the average monthly gain of 202,000 during the past 12 months.
The labor market has cooled considerably during the past year — a wholly expected development as the demand and supply of workers get back into better balance after the seismic shock of the Covid-19 pandemic — however, concerns have increased in recent months that job growth isn’t just slowing, but deteriorating.
A ‘place of stability’
July’s shockingly weak jobs report stoked fears that the jobs market was collapsing, potentially taking the economy into a downturn.
Although July’s gains were revised even lower and June’s were slashed by 61,000 to 118,000, August’s report came in comparably solid and stronger.
“We’re still in a place of stability,” Rachel Sederberg, senior economist and research manager at labor force analytics firm Lightcast, told CNN in an interview. “We still have a significant number of job openings. Our unemployment rate went back down again this month: No, not the historically low levels that were wild that I think we’ve all gotten used to, but still low.”
All told, the labor market continued a historic streak of expansion. The US economy has added jobs for 44 months in a row, the fifth-longest stretch on record since the BLS started tracking employment in 1939.
However, considering the revisions and the fact that August’s monthly total was below expectations, Friday’s report doesn’t yet provide a clear signal, said Becky Frankiewicz, president of ManpowerGroup North America.
“Today’s jobs report demonstrates that this summer’s ‘Great Waiting Game’ has continued, with both employers and employees holding out for proof of improvement versus speculation of forecasts,” she wrote in commentary issued Friday.
Unemployment spike a ‘red herring’
Some of the biggest gains last month came in health care (+44,100), leisure and hospitality (+46,000) and construction (+34,000).
The largest job losses took place in manufacturing, which shed an estimated 24,000 positions in August. Retail trade, which posted losses for the third consecutive month, was down by 11,100; and information saw an estimated 7,000-job drop, according to the report.
Even though employers have reined in hiring significantly, curbing job growth in the process, economists note that the underpinnings of the labor market have remained sturdy: Layoffs aren’t mounting and labor force participation remains high.
August’s report also shows that the unemployment rate’s sharp increase in July (when it leapt from 4.1% to 4.3%) was likely a “red herring” and that fears of an imminent recession were “clearly overblown,” Kory Kantenga, head of economics for the Americas at LinkedIn, told CNN in an interview.
In July, economists speculated the jobless rate was lifted by short-term influences, particularly weather-related impacts and seasonal auto plant shutdowns in Michigan. The July jobs data showed the number of workers on temporary layoff shot to 1.06 million from 813,000 the month before.
In August, that figure not only cooled back down to 872,000, but the labor force grew with nearly 70,000 new entrants looking for work.
On the precipice of a rate cut
When markets tanked on the news of the weak July jobs report, recession fears grew — as did the odds for the Fed to go big on its rate cut, potentially slashing its benchmark rate by a half-point at its September 17-18 meeting. And while a rate cut is coming, the jury is still out on the exact size of that move.
“The September rate cut is a done deal at this point,” Kantenga said. “I don’t think we’re necessarily going to see a [half-point] rate cut, because the report wasn’t so bad to justify the Fed moving more aggressively.”
Monetary policy acts with a substantial lag, so it will take some time for ratcheted-down interest rates to work their way through the system.
However, the decades-high interest rates the Fed started to roll out in 2022 have already taken their toll in some areas: The Black worker unemployment rate has increased at a more rapid pace than the overall rate, Michelle Holder, associate professor of economics at John Jay College, City University of New York, told CNN in an interview.
“With this rate cut, will the economy be able to move back into a position where we can again see these historically low unemployment rates — for the country and for certain groups whose labor market fortunes haven’t been great for decades?” she said. “Can we nudge the economy back in a direction where workers overall, and certainly Black workers, were faring much better than they had fared in a long time?”
CNN’s Matt Egan contributed to this report.
