The jobs market is holding steady as the country heads into the Labor Day weekend.
In August, the United States saw an increase of 187,000 jobs, yet the unexpected rise in the unemployment rate can be attributed to the influence of elevated interest rates and the gradual slowdown of the U.S. economy, which had previously experienced a surge in the wake of pandemic lockdowns.
The data, released by the Labor Department on Friday, is the most recent sign of a summer slowdown in hiring. Following a streak of 29 consecutive months with job growth consistently surpassing 200,000 on a seasonally adjusted basis, the past three months have all failed to reach that threshold.
The increase in the unemployment rate to 3.8 percent from July’s 3.5 percent is likely due to a positive development: a greater number of individuals have entered the job market. Additionally, the job growth data for both June and July were adjusted downward, resulting in a slightly less robust overall employment situation than previously indicated.
Nevertheless, there are no indications of an impending recession that would lead to widespread unemployment. Furthermore, the increase in jobs in August remained considerably higher than what is needed to accommodate the influx of individuals joining the labor force. Hourly earnings also saw a 4.3 percent increase during the month, which was slightly below expectations but in line with the wage growth trend observed since the spring.
The latest hiring statistics could still undergo revisions, but the overall consistent decline suggests that although the job market may not be as robust as it was during the peak of the pandemic recovery, it might be settling into a more favorable condition compared to its pre-2020 state.
“The positive aspect of this situation is that it’s a ‘new normal’ that tilts in favor of workers, which is a departure from what we’ve experienced over the past 25 years,” remarked Justin Bloesch, an assistant professor of economics at Cornell University. Additionally, he pointed out that stability brings its own advantages, as people are more inclined to participate in the workforce when they have confidence in their ability to maintain their employment for an extended period.
“This is where we start to get to the time where the duration of a good labor market matters more than how good,” Dr. Bloesch said.
A significant portion of the deceleration in job growth can be attributed to industries that are readjusting to their usual patterns following the disruptions caused by the pandemic. A prime example is the truck transportation sector, which expanded to meet the surge in online shopping during the stay-at-home period but has since contracted as the demand subsided. Trucking company payrolls have now plateaued, and this likely conceals a genuine decline, as many contracted owner-operators have also ceased operations.
The bankruptcy of Yellow, a company that employed approximately 30,000 drivers and other staff members, likely expedited this trend due to the reduction in available job opportunities.
“The trucking employment landscape has transitioned from being extremely competitive in 2021 and the initial part of 2022 to now being as relaxed as it has been since the period shortly after the Great Recession,” commented Kenny Vieth, President and Senior Analyst at ACT Research. “The bankruptcy of Yellow, which removed over 20,000 drivers from the market, represents a step toward stabilizing the supply situation.”
These changes can be observed in the ratio of job openings to unemployed individuals, which dropped from over two in early 2022 to approximately 1.5 in July, suggesting that employers’ demand for labor has significantly decreased. Additionally, the average weekly working hours have returned to normal levels, making overtime less crucial as workforce numbers have increased.
As the previous waves of intense hiring activities subside, job growth has become concentrated within specific industries. These industries either continue to rebound, such as leisure and hospitality, or enjoy sustained demand due to structural factors within the economy, such as education and healthcare. It’s worth noting that these sectors also exhibit a higher representation of immigrants and women, both of whom have joined the labor force at rates that have surprised many analysts.
“At a certain juncture, as we’re already witnessing to some extent in the leisure and hospitality sector,” remarked Stephen Juneau, an economist at Bank of America Merrill Lynch, “the growth potential becomes limited. Health services, on the other hand, benefit from the structural factors of an aging demographic, and we are gradually restoring hospital funding to its typical levels. But when these supporting factors diminish, what will be our remaining sources of support?”
The August job report in the United States paints a complex picture. While the economy added 187,000 jobs, the unexpected rise in the unemployment rate can be attributed to factors like elevated interest rates and a gradual economic slowdown post-pandemic.