Job growth slowed in August but remained solid, suggesting that rising interest rates and fears of a possible recession are prompting companies to cut back on hiring – but that the jobs recovery remains robust.
Employers added 315,000 seasonally adjusted jobs last month, the Labor Department said on Friday. That was down from 526k in July, although it still represented a strong pace of growth. The unemployment rate rose to 3.7 percent.
Economists have been saying for months that job growth is likely to slow as the economy slows from last year’s vaccine-driven boom and higher borrowing costs make it harder for businesses to expand. Instead, the job market remained sizzling even as other parts of the economy, such as the housing market, fell sharply. Data released on Friday suggested the long-delayed slowdown may have finally begun.
Normally, such a slowdown would be a worrying sign, especially at a time when forecasters are warning of a possible recession. But in the ebb and flow of the late-pandemic economy, a modest slowdown in job growth could actually be good news, if not for everyone.
That’s because Federal Reserve policymakers believe the labor market is effectively overheated: with twice as many vacancies as jobseekers, employers compete for labor by driving up wages and ultimately prices. The Fed hopes that by raising interest rates it can cool the job market enough to bring inflation down, but not so much that unemployment skyrockets.
“I think stability is very welcome to the economy right now,” said Michelle Meyer, chief U.S. economist at Mastercard. “If we have a glide path there, if we take those steps from 500,000 jobs to 300,000 to 200,000, that’s a better outcome than if we have a dramatic shock where we suddenly have negative job growth next month.”
There are signs that the Fed’s plan may work. Job vacancies have fallen from their peak last spring, wage growth has slowed and fewer workers are leaving their jobs, a sign that competition for labor may have eased somewhat. However, layoffs have remained small, despite some high-profile announcements, and employers have cut, not entirely abandoned, hiring plans.
“Yes, employer demand is cooling off,” says AnnElizabeth Konkel, economist at career portal Indeed. “It’s cooling a little faster in some areas. But it’s still going strong. It’s still sturdy.
Still, any slowdown will have consequences for workers, who have had rare leverage in recent months. If there are fewer vacancies and employers are less willing to hire new employees, companies could regain power and give workers less scope to demand raises, flexible working hours or other perks.