Despite the fact that the unemployment rate grew to 3.7 percent in August, U.S. firms added slightly more workers than anticipated, keeping the Federal Reserve (the Fed) on track to deliver a third 75 basis point interest rate hike this month.
The Labor Department reported on Friday that non-farm payrolls climbed by 315,000 jobs in the previous month. Data for July was significantly revised downward to reflect a surge in payrolls of 526,000 rather than the previously reported 528,000. The number of jobs increased for the 20th month running.Reuters News Agency economists had predicted a 300,000 increase in payrolls. The range of estimates was between 75,000 and 450,000. From a pre-pandemic low of 3.5 percent in July, the jobless rate rose to 3.7 percent.
The employment report was released a week after Federal Reserve Chair Jerome Powell warned Americans of a painful time of weak economic growth and potential job losses as the US central bank aggressively tightens monetary policy to combat inflation.
The economy continued to develop last month despite the first half of the year's GDP decline, and the strong job growth was another indication that the Fed still needs to calm the labor market despite the front-loading of rate hikes.In June and July, the Fed twice increased its policy rate by three-quarters of a percentage point. It has increased that rate since March, bringing it from almost zero to the level of 2.25 percent to 2.50 percent it is at now. According to CME's FedWatch Tool, financial markets are pricing a chance of over 70% for a 75 basis point rise at the Fed's policy meeting on September 20-21.The amount of the upcoming rate increase will largely depend on August consumer pricing data, which is anticipated in the middle of the month.
The labor market continues to forge its own course despite mounting recession threats. On the last day of July, there were 11.2 million unfilled positions, or two positions for every unemployed individual. By historical standards, the number of initial applications for unemployment benefits is extremely low.Economists attributed the labor market's resiliency to employers holding onto workers after struggling in the previous year as the COVID-19 epidemic pulled some people out of the workforce, in part due to the disease's long-lasting effects. They assert that fewer workers are likely to become a permanent reality for firms as legal immigration slows.
Additionally, there is a pent-up need for labor in the service sectors, which include the airlines and restaurants and are among the industries most severely affected by the pandemic. More than a full percentage point below its pre-pandemic level, the labor force participation rate, or the percentage of Americans who are working age and either have a job or are looking for one, continues to exist.Following a 0.5 percent increase in July, the average hourly wage increased by 0.3 percent in August. Due to this, the annual pay rise in August remained at 5.2 percent.
Strong wage growth is preventing a recession for the time being and keeping the income side of the economic growth ledger increasing, albeit at a slow pace.
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