315K Jobs Added in August, Unemployment Rate Ticks Up to 3.7%

Highlights Sep.04,2022 12:00

The number may foreshadow some slowing of the job market and will be closely scrutinized by the Federal Reserve.

Employers created 315,000 jobs in August, in line with expectations but a notable downshift from July, the Labor Department reported on Friday.

The number compares to the revised 526,000 created in July, which was more than twice what had been forecast. Job gains were strongest in professional and business services, health care and retail trade.

The unemployment rate edged up to 3.7% from 3.5%.

The number may foreshadow some slowing of the job market and will be closely scrutinized by the Federal Reserve, which has vowed to continue raising interest rates until it quashes inflation that is running above 8% a year. Reducing some of the imbalance between demand for labor and the supply of workers is crucial to that effort.

But those close to the front lines of the labor market say that while some of the frenzied behavior of last year is gone, the jobs market is still one where employees are in strong demand and companies are having to pay up to get workers.

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“From what we see, order volume remains very strong,” says Traci Fiatte, CEO of professional and commercial staffing at global staffing company Randstad. “It’s not massively spiking up but there is no slowdown both for temporary or contingent or permanent workers.”

Fiatte says that one shift that is occurring is toward firms seeking more permanent employees as they are seen as more likely to stay with the company. “Companies have been in a state of desperation to retain employees,” she says.

Overall, the job market has proven to be one of the standouts of the recovery from the effects of the coronavirus pandemic. It took a little over two years for payrolls to recoup the losses of the pandemic – compared to the six years it took in the recovery from the Great Recession of 2007 to 2009.

And certain demographics have done better during this recovery, reducing employment discrepancies that have persisted for years.

“We are seeing some areas where gaps are narrowing,” says Kathryn Zickuhr, a labor analyst at the Washington Center for Equitable Growth. “The employment rate for Black men and Latino workers” is now higher than in early 2020, she notes.

Rising wages, along with soaring energy costs, have been among the major reasons for the spike in inflation along with housing costs and supply chain disruptions. The housing sector has softened in recent months and a lot of the supply chain problems have abated. But the fear at the Fed is that wage inflation could become embedded in the economy.

Referring to Fed Chairman Jerome Powell’s recent speech in which he warned of “pain” for businesses and households from rising interest rates, Conning Global Chief Investment Strategist Rich Sega says “pain is a euphemism for recession.”

Fears of recession continue, with many economists pricing in a downturn in 2023. But there is also a chance of a “soft landing” where the economy slows enough to dampen inflation but escapes an outright recession.

The Fed raised interest rates twice, in June and July, by 75 basis points. Analysts expect it to raise rates again later this month, with opinion split on whether it will be another 75 basis point hike or 50 basis points.

But first, the labor market would need to cool. By some measures, the opposite is happening. On Tuesday, the Labor Department reported that 11.2 million positions were open at the end of July, an increase from the prior month’s upwardly revised 10.9 million.

“We place the likelihood of a U.S. recession in the next 12 months at about 25% and in the next 24 months at about 65%,” Vanguard said in its monthly economic outlook released Thursday.

And the mutual fund giant Vanguard reduced its forecast for full-year 2022 U.S. economic growth to 0.25% – 0.75% from last month’s estimate of about 1.50%.

“August’s report indicates that the market may be pulling back from record highs and settling in at more normal levels,” says Bill Armstrong, president of recruiting at Safeguard Global. “As the Fed more aggressively pursues rate increases, we can expect to see the labor market begin to slow down and align with economic activity.”

“With that being said, we are still seeing more job growth than we have historically seen during times of economic slowdown or recession – the labor market is not following the traditional, linear path we would expect to see,” Armstrong added.