The economy beat expectations in August and added 187,000 jobs, another sign the labor market has some momentum despite the Federal Reserve’s interest rate hikes.
The headline job growth number in Friday’s employment report from the Bureau of Labor Statistics was more than predicted, but other details showed that gains are slowing.
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June’s employment gains were revised down by 80,000 to just 105,000, and July’s were revised down by 30,000 to 157,000. Monthly job growth is about half of what it was at the start of the year, suggesting the recovery from the pandemic disruptions may be nearing an end.
Another negative indication from the report is the unemployment rate rose to 3.8% — still a low figure by historical standards but up from the multidecade lows of earlier this year. A major caveat is that unemployment rose largely because more people began looking for work and thus were counted among the unemployed. The labor force participation rate rose by 0.2 percentage points to 62.8% after being flat since March.
The latest report, given the elevated unemployment rate and revisions, could up the odds that the Fed will hold rates steady at its next meeting later this month.
“Bottom line is, for the Fed, it doesn’t take potential increases off the table, this number,” Brian Marks, executive director of the University of New Haven’s Entrepreneurship and Innovation Program, told the Washington Examiner. “It definitely shows the Fed actions have been taking hold and impacting the labor market. We’re seeing the trend of slowing. The revisions downward are quite telling.”
Jobs continued to increase in healthcare, leisure and hospitality, social assistance, and construction.
The Fed has carried out a historic effort to tighten monetary policy in response to the inflation that has wracked households over the past few years. Annual inflation, as measured by the consumer price index, fell from more than 9% last June to just over 3% this June.
In the gauge favored by the Fed, the consumption expenditures index, prices rose at a 3.3% annual rate in July, according to a report released on Thursday.
GDP growth has remained surprisingly buoyant despite the rate hikes.
Economic growth increased at a 2.1% annual rate in the second quarter of this year, according to the government’s GDP estimates released this week. That follows a first quarter that featured a 2% growth.
Still, there are some side effects of the interest rate hikes that are hurting consumers. The higher interest rates have made credit cards more difficult to pay off and pushed housing affordability out of the reach of many families.
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As of Thursday, the average rate on a 30-year fixed-rate mortgage was sitting at just over 7%, according to Mortgage News Daily. That is a decline from the 7.42% notched last week, which marked the highest mortgage rates have gone since 2000.
The Biden administration has embarked on a political blitz promoting what it has dubbed “Bidenomics,” an effort to highlight all of the positive spots in the economy while tethering the president to the good news. The hope is that voters will be persuaded to reelect President Joe Biden in 2024 if they begin to see the economy in a better light, but that has not happened yet.
