The Labor Department reported on Friday that unemployment rose to 3.8% in a sign the US economy is slowing, even as US employers added a better-than-expected 187,000 jobs last month.
The high jobless numbers surprised economists who had expected the US Bureau of Labor Statistics to report 3.5% nationwide unemployment even in July.
News of the surprise rise in unemployment seemed to outweigh news that the economy added 187,000 jobs last month in investors’ minds.
That was more than the 170,000 forecast by economists, according to data company FactSet. Still, it was the third straight month of fewer than 200,000 job creations and follows the recent downward revisions in US jobs data.
Pre-market activity in stock markets soared as traders bet on a lower likelihood of the Federal Reserve raising interest rates at its next monetary policy meeting.
“We’re starting to see this slow slide into a cooler job market,” said Becky Frankiewicz, chief commercial officer at employment firm ManpowerGroup. “Make no mistake: demand is cooling off. … But it’s not a free fall.”
The Labor Department also reported that average hourly wages in the US rose 0.2% in August from the previous month. Wages also rose 4.3% year-on-year, slower than last year but well above the pre-pandemic pace.
According to the Labor Department, the number of people employed in the manufacturing sector increased by 16,000 compared to the previous month.
The latest sign that the pace of hiring is losing some of its momentum – without plummeting – would be welcomed by the Federal Reserve, which has been attempting to stem inflation with a series of 11 rate hikes.
The Fed is hoping for a rare “soft landing” in which it manages to slow hiring and growth enough to dampen inflation without plunging the world’s largest economy into recession.
Economists have long been skeptical that Fed policymakers will succeed.
But optimism has grown. Since peaking at 9.1% in June 2022, inflation has been falling more or less steadily year-on-year. In July it was 3.2%.
But although the economy grew at a slower pace than during the post-pandemic recession boom of 2020, it has defied the pressure of ever-higher borrowing costs.
Gross domestic product — the economy’s total output of goods and services — grew at a respectable 2.1% annual rate from April to June.
Consumers continued to spend and businesses increased their investments.
The Fed wants hiring to slow as strong demand for labor tends to push up wages and fuel inflation.
So far, the job market has cooled off in the least painful way – with few layoffs.
And the Labor Department reported Thursday that the number of Americans filing for unemployment benefits — an indicator of job cuts — fell for the third straight week.
“Employers don’t want to lay off their existing talent,” said Frankiewicz.
Instead of cutting jobs, companies are posting fewer vacancies — 8.8 million in July, the fewest since March 2021.
And American workers are less likely to leave their jobs in search of better pay, benefits and working conditions elsewhere.
3.5 million people quit their jobs in July, the fewest since February 2021.
A lower churn rate tends to ease the pressure on companies to increase wages to retain existing employees or attract new ones.
The average hourly wage is also not growing as fast as last year. In March 2022, average wages increased by 5.9% compared to the previous year.
But Nancy Vanden Houten, senior US economist at Oxford Economics, noted that annual average wage increases need to slow to around 3.5% to be in line with the Fed’s 2% inflation target.
Nevertheless, economists and financial market analysts are increasingly assuming that the Fed could be done with raising interest rates.
Nearly nine in ten analysts polled by CME Group expect the Fed to keep interest rates unchanged at its next meeting on September 19-20.