The economy beat expectations and added 315,000 jobs in August, the Bureau of Labor Statistics reported Friday morning, providing reassurance about the strength of the economy even as it is wracked by soaring inflation and a dedicated campaign by the Federal Reserve to slow spending.
The unemployment rate rose 0.2 percentage points to 3.7%, still low by historical standards. That increase, though, is not necessarily bad news because it reflects a jump in the size of the labor force in the month, including job seekers who were newly counted among the unemployed.
HAWKISH POWELL SPEECH RATTLES MARKETS WITH SPECTER OF ENORMOUS RATE HIKE
“Hiding behind the good news of another strong jobs report was the better news that the unemployment rate rose,” said Robert Frick, corporate economist with Navy Federal Credit Union. “This means more Americans are returning to the labor force, and that points to an easing of many factors that kept them out.”
Frick cited a decline in the number of people who said they were sidelined because of the pandemic as evidence that the jobs market is pulling in more new workers.
Recent jobs reports have provided key positive economic data that President Joe Biden has touted even as the historic inflation cuts deeply into the paychecks of people across the country and drags down his approval ratings.
The pace of job growth has been strong for this stage of the recovery, averaging 378,000 over the past three months — a number that reflects significant downward revisions to the numbers for June and July included in Friday’s report.
Still, the economy has only in the past month regained the employment level from when the pandemic struck, and it remains a couple million jobs short of the pre-pandemic trend.
Overall, Friday’s numbers conflict with the notion that a downturn has already arrived, and White House economists have cited the jobs data to argue that the United States is not in recession.
Two consecutive quarters of GDP decline are typically taken to define a recession. After tumbling in the first quarter, GDP fell at a 0.6% annualized rate in the second quarter, a revised estimate from the Bureau of Economic Analysis showed last month.
The National Bureau of Economic Research, which is regarded by the government and economists as the authority on declaring recessions, defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.”
The housing market, one of the sectors of the economy most sensitive to the Fed’s efforts to slow inflation by raising interest rates, has slowed dramatically.
New home sales in July plummeted from the month before, dropping a massive 12.6% last month to a seasonally adjusted annual rate of 511,000 — the lowest level since January 2016. Existing home sales also plunged 5.9% in July, a sixth straight month of declines, according to a report from the National Association of Realtors. Still, Friday’s report showed that the construction industry continues to add jobs.
And other economic indicators have remained positive. Consumer confidence, for example, increased in August — the first such gain in four months.
The Fed has been jacking up rates aggressively and tightening its monetary policy to combat explosive inflation. The central bank raised rates by half a percentage point in May and then took the even more aggressive step of hiking rates by three-fourths of a percentage point in June and July — the most ambitious hikes since 1994.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
The Fed’s action is designed to slow spending and drive down prices, and while it could result in a recession, Fed Chairman Jerome Powell made it exceedingly clear during an August speech that the Fed will not be steered from its mission of lowering prices even if there is some economic “pain” along the way.
Friday’s report showed average hourly earnings growing at a 5.2% annual rate, meaning that, with inflation above 8% in July, workers are losing purchasing power rapidly.
“Reducing inflation is likely to require a sustained period of below-trend growth,” Powell said. “Moreover, there will very likely be some softening of labor market conditions. While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses.”
