The Fed's plan to fight inflation is working — and the latest data should silence some haters

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Job growth slowed in August and the unemployment rate rose to 3.7 percent. But the monthly employment report contains a wealth of detailed data that help paint a more complete picture of the labor market:

  • The labor force participation rate, the share of adults who are working or actively looking for work, rose three-tenths of a percentage point and the labor force grew by more than three-quarters of a million people. The labor force rebounded early this year as the pandemic ebbed, but progress had stalled in recent months, adding to labor shortages.

  • Average hourly earnings rose 0.3 percent in August and were up 5.2 percent from a year earlier, a slower rate of growth than in recent months. For rank-and-file workers — what the Labor Department calls “production and nonsupervisory employees” — hourly earnings were up 0.4 percent from a month earlier, and 6 percent from a year ago.

  • Construction jobs rose by 16,000. The housing market has slowed sharply as interest rates have risen, but that hasn’t shown up in the labor market yet.

  • Leisure and hospitality jobs grew by 31,000, continuing a recent stretch of strong hiring. But the industry still has 1.2 million fewer jobs than before the pandemic.

  • Remote work because of the pandemic became less prevalent, with 6.5 percent of people with jobs saying they worked from home or outside the office in August, down from 13.4 percent a year ago. Some economists have questioned the reliability of that number because many people might still be working remotely but might no longer cite the pandemic as the reason.

  • The prime-age employment rate, covering workers ages 25 to 54, rose to 80.3 percent, just two-tenths of a percentage point below its February 2020 level.

  • The unemployment rate for Black workers rose four-tenths of a percentage point, to 6.4 percent. That is exactly double the rate for white workers, which ticked up a tenth of a point to 3.2 percent. Employment fell among Black workers while rising for white workers.

Slowing job and wage growth, alongside rising labor force participation in August, is good news for President Biden and his hopes for a smooth transition to a more stable economic expansion.

The jobs report on Friday was the first of the summer to support the case Mr. Biden and his economic aides have been making for months: that the economy is beginning to step down from a high-growth, high-inflation expansion coming out of the pandemic recession but avoiding another recession.

The report showed the country added 315,000 jobs in August, down from 526,000 in July. The unemployment rate ticked up slightly, to 3.7 percent. That cooling is enough to support Mr. Biden’s contention, which he first laid out in a Wall Street Journal opinion piece in May, that the country is set to “see fewer record job-creation numbers, but this won’t be cause for concern.”

There were also signs in the report that inflation could be coming down, as the Federal Reserve aggressively raises interest rates in order to tame price growth that has reached a 40-year high. Average wages continued to rise, the Labor Department said, but not as quickly as in previous months. Administration officials have been hoping for the Fed’s rate increases to bring down inflation while not slamming the brakes on growth, triggering a recession and plunging millions of Americans out of work.


One of the most encouraging signs in the report for the White House was that more workers were searching for work, which could further dampen inflation. The labor force participation rate grew by 0.3 percentage points in August, matching its highest rate in the recovery from the pandemic.

But the report seems unlikely to aid Mr. Biden’s efforts to persuade many Americans that the country is not in recession, which polls suggest more than half of voters believe to be the case. The president has argued that strong job growth is a sign that the economy is nowhere near a recession because employers generally fire workers and hire fewer people in a downturn.

Voters, though, seem less focused on the labor market. Only one in nine respondents to a poll by The Economist and YouGov said jobs reports were the best evidence of a recession. The most cited recession indicator — preferred by more than two in five respondents — was “the price of goods and services you buy.”

The US hiring spree finally seems to be losing some steam. It's exactly what the Federal Reserve was aiming for.

The economy added 315,000 nonfarm payrolls last month, the Bureau of Labor Statistics said Friday. The median forecast from economists surveyed by Bloomberg was for a gain of 300,000 payrolls. The reading reflected a moderation from July's growth rate largely due to waning consumer demand and signs of economic softening.

 

The July count was revised to 526,000 payrolls from an initial reading of 528,000 jobs. The June sum was updated a final time to 298,000 jobs from 398,000 payrolls.

Professional and business services led the gains, adding 68,000 jobs in August. Health care businesses followed with a 48,000-payroll gain, and retailers created 44,000 jobs.

No major industry shed payrolls through the month, but hiring in the construction, transportation and warehousing, government, and information sectors was largely unchanged.

The unemployment rate edged higher to 3.7%, according to the report. That came in above the median forecast of a 3.5% rate. The uptick was largely powered by a rise in labor force participation, which tracks the share of Americans either working or actively seeking work. That measure rose to 62.4% from 62.1% in August. Since the unemployment rate counts workers seeking employment, higher participation means there were more Americans counted as unemployed last month.

Pay growth similarly eased up. Average hourly earnings rose by $0.10, or 0.3%, to $32.36 in August, according to the report. Economists expected wages to rise by 0.4%. The uptick marks the weakest one-month increase since February and another sign that the booming price and wage gains seen through 2022 are slowing down.

The widespread cooldown is sure to be cheered within the Fed's halls. The August report shows the labor market charging toward a more balanced state, with job growth still firmly positive but slowing from the blockbuster pace seen earlier in the year. Cooler wage growth counters fears of a wage-price spiral, in which rising prices fuel larger-than-usual pay gains and businesses lift prices in response. And while labor force participation remains about 1 percentage point below its pre-crisis high, the August gain offers an encouraging sign that Americans are coming off the sidelines and rejoining the workforce.

The Fed has repeatedly pointed to the labor market as a key battleground in its fight against rising prices, arguing the imbalance between worker demand and supply risked keeping inflation high. That focus has been at the center of officials' forecasts for several additional rate increases throughout 2022. Rising interest rates make borrowing more expensive and curb demand, and although rate hikes don't affect the economy immediately, the shift tends to rein in businesses' hiring plans as they pivot to an environment of steadier growth.

Fed Chair Powell predicted as much in August 26 remarks, saying there will "very likely be some softening of labor market conditions" in order to quell inflation. The August jobs report signals the Fed won't have to be too aggressive to get the labor-market softening it's looking for, and that the hiring backdrop is already changing just as the central bank wants it to.

Consumer demand has also shown promising signs that the cooldown will last. Americans earning more than $75,000 dramatically cut their spending through July, according to Bank of America card data. Those with incomes below the threshold still grew their spending, but at a much slower pace than in the months prior. While inflation has already started to cool off, weaker spending could lead to further moderation in labor demand and a more balanced labor market.

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