The August jobs report showed that the labor market continues to cool, even if it is still strong by historical standards. The U.S. economy added 187,000 non-farm payroll jobs, beating consensus expectations of 170,000. However, significant downward revisions to the June and July numbers suggest the labor market is softer than previously believed. The unemployment rate also jumped to 3.8% from 3.5% in August, largely due to increases in labor force participation. The gradual rebalancing of the labor market is a positive sign for the Federal Reserve (Fed), and further bolsters the case to keep rates steady at their meeting later this month.

Report details:

  • Total non-farm payrolls climbed by 187,000, and private payrolls increased by 179,000. Perhaps more importantly, June payrolls were revised down to 105,000 from 185,000, while July’s number was revised down by 30,000 to 157,000. With revisions in August, total employment is 110,000 lower than previously reported.
  • The unemployment rate increased 0.3% to 3.8%, driven by a significant jump in the number of individuals in the labor force. The labor force participation rate increased from 62.6% to 62.8%, its highest level since the pandemic. Furthermore, labor force participation for individuals 25-54 years old rose to 83.5%, its highest level since 2001.
  • Across industries, health care and social assistance continued to grow, adding 102,000 jobs, while transportation and warehousing employment declined by 34,200. More broadly, goods-producing industry employment increased by 36,000, and private service-providing employment increased by 143,000.
  • The growth in average hourly earnings softened to 4.3% from 4.4% on a year-over-year basis in August. The annualized rate of increase was just 2.9%, its lowest level since early 2022. A continued decline in wage growth could help alleviate inflation pressures.

Labor force participation
Percentage of the population working or actively seeking work divided by the working-age population

Line graph of U.S. labor force participation from 1950-2023

Source: Clearnomics, Bureau of Labor Statistics, Principal Asset Management. Data as of September 1, 2023.

While payroll employment was stronger than expected in August, the overall report suggests that the labor market continues to slow. This trend is reinforced by recent data from the Job Openings and Labor Turnover Survey (JOLTS) which showed that job openings and quits have declined to their lowest levels in months. An end of summer cool down in hiring activity will be very welcome news for the Fed and their inflation fight, and further reduces the need for any additional rate hikes heading into the fall.

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