Hiring slowed in August as unemployment rate ticked up

Employers slowed hiring in August, signaling the labor market may finally be cooling along with the rest of the economy as interest rates rise.

Employers added 315,000 jobs, the Labor Department reported Friday — down from about 520,000 in July and in line with economists' expectations. The unemployment rate ticked up to 3.7% from 3.5% as more people came off the sidelines to look for work and were counted as unemployed.

"The August jobs report came in significantly lower than the July report. However, the economy is still adding jobs at a rate higher than the long-term average, and the job total is now 240,000 higher than the pre-pandemic level," Lisa Sturtevant, chief economist at Bright MLS, said in a note.

"The Fed had been hoping to see a slower pace of job growth after the very strong July jobs report. The downtick in employment growth in August may be a sign that the Federal Reserve's policies are starting to have an impact," she added.

The Federal Reserve has been hiking interest rates to weaken the job market as it tries to tackle soaring inflation.

Hiring has been one bright spot in a slowing economy. While the government estimates the economy shrank in the first six months of this year — an informal definition of a recession — employers have added an average of 380,000 jobs per month over the past three months, a blockbuster figure. Layoffs remain low as businesses try to hold on to the workers they have.

Wage growth in August continued to slow, with average hourly pay rising 5.2% for all workers, and 6.1% for production and nonsupervisory workers — a category that excludes managers and makes up more than 80% of the workforce.

The Fed has been keeping an eye on wages, with some officials saying they would prefer pay to be growing at a pace closer to 3% to help rein in rising prices. Fed Chair Jerome Powell has said that weakening the job offers re-entering workers have is key to getting price increases under control.

That's despite the relatively small contribution wages have made to price increases.

"There is still room for inflation to improve without requiring wage growth to fall," Daniel Zhao, senior economist at Glassdoor, told MoneyWatch before Friday's report was released. "Gas prices aren't really driven by wage growth; COVID lockdowns in China aren't impacted by wage growth." 

Consumer prices have increased 8.5% in the last 12 months, meaning that most workers' paychecks aren't keeping up with rising prices.

More workers in the market

Economists cheered a particularly encouraging sign in the jobs report. The participation rate, a measure of how many people are working or looking for jobs, rose three-tenths of a percentage point, to 62.4%. It now matches its level in March, a post-pandemic high.

"I'm not the least bit concerned that unemployment ticked up, because it means that over 300,000 people got back in the game, and that's what we need. We cannot build the econ we want to build if we have all these people siting on the sidelines," said Jane Oates, president of WorkingNation.

Most industries back to pre-pandemic levels

August's gains were broad: Employers added 68,000 jobs in professional and business services; 48,000 in health care; 44,000 in retail; 31,000 in leisure and hospitality and 22,000 in manufacturing.

While many industries have recovered the jobs they lost in the coronavirus recession, some are still behind. Leisure and hospitality is 1.2 million jobs below pre-pandemic levels and employment in government is down 550,000 jobs, including 330,000 fewer jobs in education.

"Health care has made a pretty dramatic recovery in the last few months, but leisure and hospitality is well short of where it was before the pandemic. We do want to continue to see growth there," said Zhao.

He added, "The overall economy is at a turning point, but the labor market seems to be defying gravity."