Job growth slowed in August but remained strong. This suggests that firms are holding back on hiring due to fears of rising interest rates and a possible recession, but that the labor market recovery remains resilient.
Employers added 315,000 jobs last month on a seasonally adjusted basis, the Labor Department said Friday. He’s down from 526,000 in July, but still shows a strong pace of growth. The unemployment rate he rose to 3.7%.
Economists have been saying for months that job growth is likely to slow as the economy falters from last year’s vaccine boom and rising borrowing costs make it harder for businesses to expand. Instead, the labor market remained in deficit despite sharp declines in other parts of the economy, such as the housing market. Data released on Friday showed that the long-delayed slowdown may finally have begun.
Such a slowdown is usually a worrying sign, especially when forecasters warn of a possible recession. But in a world of post-pandemic economic ups and downs, a slight setback in job growth could actually be good news, if not for everyone.
That’s because Federal Reserve policymakers believe the job market is effectively overheating. With twice as many job seekers as her, employers are pushing higher wages and ultimately prices to compete for workers. The Federal Reserve hopes that raising interest rates will cool the job market enough to keep inflation down, but not enough to cause unemployment to soar.
“I think economic stability is a welcome thing for now,” said Michelle Mayer, chief U.S. economist at Mastercard. “If you have a glide path there, from 500,000 he to 300,000 to he 200,000 jobs, if you take these steps there’s going to be a dramatic shock that job growth will suddenly be negative next month. You will get better results than if it happened.”
There are signs that the Federal Reserve’s plan may be working. Job openings have declined since peaking last spring, wage growth has slowed and fewer workers are leaving, indicating that competition for workers may have softened somewhat. But despite some high-profile announcements, layoffs remain low and employers are cutting back rather than abandoning their hiring plans altogether.
“Yes, employer demand is cooling,” said Ann-Elisabeth Conker, an economist at career site Indeed. “In some areas it’s getting cold a little faster. But it’s still strong. It’s as sturdy as ever.”
Cooldowns will still affect workers though. If there are fewer jobs available and employers are less enthusiastic about hiring, businesses may regain power and leave less room for workers to demand raises, flexible schedules, or other perks.