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With businesses adding 315,000 more jobs in August on top of the previously reported 526,000 positions created in July, the labor market in the United States has surprised economists.
Despite exceeding economists’ projections, the nation’s unemployment rate increased from 3.5% to 3.7%. The rate increased because so many people entered the job market in the aftermath of the pandemic, according to a report by the Bureau of Labor Statistics.
The worsening inflation prompted the increase in interest rates. The Fed will meet toward the end of the month to talk about the interest rates it will try to enforce on the nation, and the August report’s apparent optimism may influence the Fed to lower the rates.
The Fed, however, is not at all pleased with the labor market’s present strength. The relatively slow tempo of several industries’ sales, such as housing, which has become more turbulent as the months go by, is evidence that the economy is already slowing down. Moreover, the demand for workers is “clearly out of balance,” said Fed Chairman Jerome Powell, who also noted that the “demand for workers substantially exceeds the supply of available workers.”
The August labor market
The number of jobs to job seekers was 2:1 last week, according to a report from the Bureau of Labor Statistics. However, this can be clarified by the sheer number of open positions for candidates, which already reached 11.2 million last July, an increase of 700,000 from June.
“We have a calm center and lots of conflicting factors swirling around. But effectively, what we’re seeing is that in spite of rising rates and supply chain issues that continue to plague [businesses], the jobs market is robust. There’s a lot of pent-up demand for employees,” stated Jim McCoy, Manpower Group, senior vice president.
In August, there was a significant monthly increase in employment in the professional and business services and healthcare sectors. The first saw a 68,000 position increase, while the second saw a 48,000 increase. The US now experiences an average of 438,000 new jobs each month, thanks to the new figures.
“I think it’s reasonable to expect that we will not keep that pace up between now and the end of the year,” stated Bankrate senior economic analyst Mark Hamrick. “I think that we may well have seen the low for unemployment during this cycle.”
The Feds’ goal
The annual average is higher than in the months before the pandemic. However, Boston College’s Brian Bethune asserted that the Feds might accept the data from the August report.
“I don’t think the Fed wants to see things suddenly decelerate, nor do they want to see things move at too rapid of a rate for the economy to adjust,” Bethune posited. “What the Fed wants is the Goldilocks economy. They want it to be moving along at a steady pace — but not too fast; not too hot, not too cold.”
Bethune defended this stance by asserting that employing more people would ease the restrictions placed on goods and services, particularly those that require a lot of labor.
“If the Fed goes and drives through the stop sign [by overcorrecting and spurring a recession], and we get a reduction in employment as a result, then we’re going to get a reduction in supply — really not the right path to go at all,” added Bethune.
Other factors, including wage growth, are taken into account by the Fed in addition to job availability and its correlation to the number of individuals seeking employment. Inflation could only lengthen, according to Powell, if wages continue to rise.
“This is, no doubt, a welcome development for the Fed, but we shouldn’t see this as a sign of an imminent Fed pivot toward looser monetary policy,” stated EY chief economist Gregory Daco.
Daco forecasted that the Feds might raise interest rates by a total of 50 basis points at their meeting later this month, taking into account the market’s present situation as well as other variables they are carefully watching.