August Hiring Strong but Slowing, Unemployment Rate Rises

U.S. employers added 315,000 new jobs in August, marking the 20th straight month of job growth, according to the latest employment report from the U.S. Bureau of Labor Statistics.

The tally was down from 526,000 jobs added in July, but still a solid showing amidst rising interest rates, fears of a recession and reports of companies pulling back on hiring.

The continuous pace of positive job growth is further evidence the economy continues to expand even as the gross domestic product contracted in the first half of the year, meeting the technical criteria for a recession.

"The labor market has been in the eye of an economic hurricane, the calm center amid fears of recession and inflation swirling around it," said Becky Frankiewicz, chief commercial officer and president, North America at ManpowerGroup.

"Payrolls swelled in August—about twice the 2019 monthly average gain," said Julia Pollak, chief economist at ZipRecruiter. "A modest slowdown in job growth was to be expected, now that employment has recovered to pre-pandemic levels. It is also welcome news for the Fed, which is aggressively fighting inflation and believes that success will require considerable softening in the labor market."

The unemployment rate rose to 3.7 percent, from a half-century low of 3.5 percent in July. But the increase includes a surge in the number of people actively looking for work. "The best news in this jobs report is that the unemployment rate went up," Pollak said. "It did so for all the right reasons—people are coming back to the labor force."

Economists and the Biden administration have been expecting job growth to begin to cool this year, but the latest employment numbers are still impressive for being the beginning of a slowdown. "While the jobs numbers are less than last month's blowout, the three-month average for jobs added is 378,000 per month," said AnnElizabeth Konkel, a senior economist at the Indeed Hiring Lab. "With increased labor force participation and robust employer demand for workers, today's report underscores the labor market is not in a recession."

Daniel Zhao, Glassdoor senior economist, added that even as the economy slows and the unemployment rate rises, "the labor market is a seawall holding back a rising tide of recession fears as job gains continue at a healthy pace."

Broad Sector Gains

Professional and business services led payroll gains with 68,000 jobs added, followed by health care with 48,000 and retail with 44,000. Leisure and hospitality, which has been a leading sector in the pandemic-era jobs recovery, rose by 31,000 for the month.

"Hiring is still hot," said John Gulnac, vice president at Adecco. "Some sectors are particularly seeing growth, and I don't see them losing steam any time soon. Professional and business services employers have now added over 1 million jobs in the last year. We're also seeing an uptick in demand for employees who offer cross-functional skill sets but haven't received a traditional college degree."

Job gains were largely driven by the service sectors, however, goods-producing industries still added 45,000 jobs with ongoing gains in industries like construction (+16,000), despite rising interest rates and a cooling housing market, Zhao said. Manufacturers added 22,000 jobs.

Konkel said that "While there's been hiring freeze and layoff announcements from the tech sector, 7,000 information jobs were added, and the sector is up 4.4 percent compared to pre-pandemic."

Another industry achieved the milestone of a full return to pre-pandemic employment levels in August, Pollak said. "Wholesale trade employment increased by 15,000 last month, returning to its February 2020 level," she said. "The industry has added 197,000 net new jobs over the year."

On the other hand, employment among local public schools—teachers and support staff—fell and is now over 362,000 below the pre-pandemic level, Pollak said. "While children have started going back to school, teachers, it appears, have not," she said. "Public schools are battling a chronic shortage of teachers and school support staff."

Frankiewicz said that while the labor market is beginning to show a softening in demand, in many cases, the reductions are being reallocated to other industries. "Seasonal hiring has slowed, as is normal this time of year," she said. "But we continue to see steady demand for retail workers as a result of continued turnover. Warehouse and manufacturing are neck and neck, driving blue collar demand as we enter the next seasonal hiring phase."

Gulnac added that with the employment gains seen in August, employee retention will continue to be a major priority for business leaders who are hoping to conserve budget to be mindful of economic uncertainty and inflation.

Unemployment, Labor Force Participation Rises

The uptick in unemployment from a five-decade low is not a cause for panic, experts said.

"The rise in unemployment is not an immediate red flag as it was married with a rising labor force participation rate, jumping to 62.4 percent from 62.1 percent in July, the highest level since March and a reversal of recent declines," Zhao said. "Similarly, prime-age labor force participation rose to 82.8 percent, the highest level since February 2020."

Labor force participation particularly rose for prime age women, jumping nearly a whole percentage point, Konkel said.

People who have been on the sidelines of the labor market are now jumping back in, Pollak agreed. "In recent ZipRecruiter surveys, job seekers have cited inflation as a major reason they have started looking for a job," she added.

Zhao said that rebounding labor force participation is an encouraging sign that there are still workers available to join from the sidelines, relieving some pressure in the job market by supporting job gains without adding more pressure on wages.

But Monster economist Giacomo Santangelo cautioned that while the increase in labor force participation is a positive sign, there's still a long way to go to return to pre-pandemic levels or to the March 2001 high. "Looking at the labor market, we need to remember we're reaching the end of Baby Boomers' participation in it, which will result in a surge of employment opportunities for Millennials and Gen Z," he said.

The Federal Reserve has been battling the inflation problem with a series of interest rate hikes that are expected to continue into next year, which will have an adverse effect on unemployment. "As the Fed continues to tighten the money supply, we expect to see unemployment increase," Santangelo said. "But the Fed can't drive unemployment up too much, too quickly. This month's unemployment increase of 0.2 percent may signal that the Fed has room to be more aggressive in their monetary tightening."

Wage Growth Slows

Wage growth slowed in August, which is bad news for workers, as pay was already failing to keep pace with inflation in many industries, but welcome to policymakers at the Federal Reserve, who have been eyeing rising wages as fueling inflation.

Average hourly earnings rose 0.3 percent in August, down from a gain of 0.5 percent in July. Over the past year, hourly earnings are up 5.2 percent.

"Moderating wage growth and rising labor force participation keep the labor market on course for a soft landing where job gains can continue without adding to inflationary pressures," Zhao said.