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The labor market in the United States has shocked economists, with companies creating 315,000 more jobs in August, on top of the revised 526,000 positions created the previous month.
Even though the results were better than economists had predicted, the nation’s unemployment rates increased from 3.5% to 3.7%. According to a report by the Bureau of Labor Statistics, the rate increased as a result of the post-pandemic surge in applicants.
In the meantime, inflation pushed interest rates to all-time highs. The Fed will meet later this month to discuss the rates it will impose on the nation, and given the August report’s apparent positivity, the Fed may decide to lower the rates.
The Fed does not, however, like how robust the labor market is. The economy is already slowing down, which is demonstrated by the relatively slow sales rate in a number of industries, such as housing, which has become more erratic over the months. Moreover, the labor market is “clearly out of balance,” according to Fed Chairman Jerome Powell, “with demand for workers substantially exceeding the supply of available workers.”
The report in August
According to a Bureau of Labor Statistics report, there were 2:1 job seekers to open positions last week. This can be explained by the number of available positions, which reached 11.2 million last July, an increase of 700,000 from June.
“We have a calm center and lots of conflicting factors swirling around. But effectively, what we’re seeing is that in spite of rising rates and supply chain issues that continue to plague [businesses], the jobs market is robust. There’s a lot of pent-up demand for employees,” said Manpower Group senior vice president Jim McCoy.
The monthly employment in the professional and business services and healthcare sectors increased significantly in August. While the latter saw a 48,000 increase, the former added 68,000 positions. The US now creates an average of 438,000 jobs per month with these new figures in place.
“I think it’s reasonable to expect that we will not keep that pace up between now and the end of the year,” added Bankrate senior economic analyst Mark Hamrick. “I think that we may well have seen the low for unemployment during this cycle.”
What the Feds aim for
This year is higher than the monthly average from the time before the pandemic. However, according to Boston College’s Brian Bethune, the Feds might accept the data from the August report.
“I don’t think the Fed wants to see things suddenly decelerate, nor do they want to see things move at too rapid of a rate for the economy to adjust,” Bethune explained. “What the Fed wants is the Goldilocks economy. They want it to be moving along at a steady pace — but not too fast; not too hot, not too cold.”
Bethune argued that hiring more people would ease the restrictions placed on goods and services, particularly those that require a lot of labor.
“If the Fed goes and drives through the stop sign [by overcorrecting and spurring a recession], and we get a reduction in employment as a result, then we’re going to get a reduction in supply — really not the right path to go at all,” he added.
The Fed is taking into account a number of other factors in addition to job availability and its relationship to the number of job seekers, one of which is wage growth. According to Powell, ongoing wage increases can only contribute to longer-term inflation.
“This is, no doubt, a welcome development for the Fed, but we shouldn’t see this as a sign of an imminent Fed pivot toward looser monetary policy,” said EY chief economist Gregory Daco.
Daco predicted that, in light of the market’s current circumstances and other elements that the Fed is closely monitoring, its authorities might decide to add a total of 50 basis points during their meeting later this month.
Opinions expressed by CEO Weekly contributors are their own.