August jobs report unexpectedly strong

Rachel Barber

USA TODAY

The U.S. economy added a surprising 162,000 jobs in August, the Labor Department estimated Sept. 4, even as economists said a 'low-hire, low-fire' dynamic made it difficult for unemployed Americans to find work.

The 162,000 estimate for August far surpassed forecasters’ expectations and marked a rebound after U.S. employers added a now-revised 21,000 jobs in July. The department previously estimated U.S. employers shed 23,000 jobs in July. Payroll gains for June were also revised higher, reflecting a stronger summer job market than previously thought.

The unemployment rate stayed put at 4.1% in August after falling in June and July when hundreds of thousands of Americans stopped looking for work. The labor force participation rate ticked up to 61.6% in August after falling to 61.4% the month before.

'There are always areas of concern in the labor market. For example, among recent graduates,' Federal Reserve Chair Kevin Warsh said Aug. 28. 'In general, though, people who want to work, by and large, are holding or finding jobs. They may well be concerned about future labor disruptions, but as of now, I believe the labor markets are broadly consistent with full employment.'

Average hourly earnings for employees on private, nonfarm payrolls rose by 10 cents to $37.75 in August, the department said. They increased 3.1% over the year. The department’s next inflation report, due out Sept. 11, will reveal whether paychecks kept up with inflation in August. They did not in July.

Fed officials will review the new employment numbers for August and the upcoming inflation report as they prepare for their next interest rate decision on Sept. 16. Several policymakers have signaled they may support a rate hike if the report shows inflation is not on a path back to the central bank’s 2% annual target.

'We believe today’s report further confirms that policymakers will remain focused on the inflation side of their mandate,' Edward Jones investment strategy analyst Brock Weimer said in a note to USA TODAY. 'While August inflation data will likely play a key role in shaping the Fed’s decision later this month, and a rate hike is far from a foregone conclusion, we believe policymakers will show limited tolerance for upside inflation surprises.'

A boost in employment in food services and drinking establishments drove the payroll gains. The sector added 59,000 jobs in August.

Not far behind was local government education, which added 42,000. The construction sector added 22,000 roles, and the manufacturing industry gained 16,000 jobs. The health care sector added 13,000, lower than its average monthly gain of 32,000 over the past year.

Employment in the information industry fell by 23,000 in August. It was little changed in other sectors including social assistance, financial activities, and professional and business services, the department said.

'Taken together, the data point to a stable labor market, not an accelerating one,' Kory Kantenga, LinkedIn’s head of economics for the Americas, said in a note to USA TODAY. 'The strong gains in Leisure and Hospitality and Government are a rebound from earlier summer weakness, not a shift in trend. Do not expect a repeat.'

ADP’s National Employment Report released Sept. 2 offers another look at the U.S. labor market. It found private employers added a much lower 38,000 jobs in August.

According to the ADP report, the education and health services sector added 45,000 roles, leisure and hospitality gained 16,000 and construction added 12,000 in August. It found employment in the financial activities sector increased, but that employment declined in professional and business services, trade, transportation, utilities and the information sector.

Warsh and other Federal Reserve officials described the U.S. labor market as 'stable' in August. Across the Fed’s 12 districts, three experienced 'modest' gains, four showed 'slight' gains and five reported no change in employment since early July, according to the central bank’s latest Beige Book.

Other Labor Department data released Sept. 1 showed the national quits rate changed little from July to August, as workers continued clinging to their jobs in part because they feared they wouldn’t be able to land another. The number of job openings was also little changed in August from the month before, the department said, leaving unemployed workers stuck in a competitive market.

Facing fierce competition and a hiring process being reshaped by artificial intelligence, some job seekers have stopped looking for work. Kantenga said one reason behind past months’ labor force departures could be that Americans are realizing their wages aren’t keeping up with inflation.

'When it comes to people joining the labor force and staying in the labor force, it’s about the incentives,' Kantenga said. 'For some people, that’s going to be a better deal to stay home, provide your own child care rather than going to work and paying for child care that costs more than your annual salary.'

Employers also announced plans to hire 12,325 workers in August, representing a 23% decline from July but marking the highest August total since 2022, according to a Sept. 3 Challenger, Gray & Christmas report. Employers announced 52,881 job cuts in August, up 58% from July, though the lowest August total since 2022.

The jobs report may give the Fed some leeway to raise its benchmark for interest rates at its next meeting, though a hike is not guaranteed.

Before then, policymakers will want to review the department’s August inflation report. If inflation slows, several voting members of the Federal Open Market Committee have expressed interest in raising the target range for interest rates. The committee hasn’t done so since July 2023.

President Donald Trump would like Fed policymakers to do the opposite. He took to Truth Social and renewed his calls for lower interest rates.

The Fed typically raises rates to tame inflation and lowers them to stimulate the job market. Slowing the rate of price increases appears to be the Fed’s priority, Kantenga said.

While a rate hike likely wouldn’t change labor market conditions 'immediately,' it could lead to a hiring slowdown in certain sectors over time, Kantenga said.

The labor force participation rate ticked up to 61.6% in August after falling to 61.4% the month before.

Brian Snyder/REUTERS