U.S. employers hired slightly more workers than expected in August, keeping the Federal Reserve on track to deliver a third 75 basis points interest rate hike this month, though the unemployment rate increased to 3.7%.
Nonfarm payrolls increased by 315,000 jobs last month, the Labor Department said in its closely watched employment report on Friday. Data for July was revised slightly down to show payrolls surging 526,000 instead of 528,000 as previously reported. That marked the 20th straight month of job growth.
Economists polled by Reuters had forecast payrolls increasing 300,000. Estimates ranged from as low as 75,000 to as high as 450,000. The unemployment rate increased to 3.7% from a a pre-pandemic low of 3.5% in July.
The employment report came a week after Fed Chair Jerome Powell warned Americans of a painful period of slow economic growth and possibly rising unemployment as the U.S. central bank aggressively tightens monetary policy to quell inflation.
Solid job growth last month was further evidence that the economy continues to expand even as gross domestic product contracted in the first half of the year and was another sign the Fed still needs to cool the labor market despite the front loading of rate hikes.
The Fed has twice raised its policy rate by three-quarters of a percentage point in June and July. Since March, it has lifted that rate from near zero to its current range of 2.25% to 2.50%. Financial markets are pricing a roughly 70% probability of a 75 basis points increase at the Fed’s Sept. 20-21 policy meeting, according to CME’s FedWatch Tool.
August consumer price data due mid-month will also be a major factor in determining the size of the next rate increase. Despite rising recession risks, the labor market continues to chart its own path. There were 11.2 million job openings on the last day of July, with two job openings for every unemployed person. First-time applications for unemployment benefits are running very low by historical standards.
Economists attributed the labor market resilience to businesses hoarding workers after experiencing difficulties in the past year as the COVID-19 pandemic forced some people out of the workforce in part because of prolonged illness caused by the disease.
With legal immigration slowing, they say fewer workers are likely to become a permanent reality for employers. There is also pent-up demand for workers in service industries like restaurants and airlines, which are among the sectors hardest hit by the pandemic. The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one remains more than a full percentage point below its pre-pandemic level.
Average hourly earnings rose 0.3% in August after increasing 0.5% in July. That kept the annual increase in wages at 5.2% in August.
Strong wage gains are keeping the income side of the economic growth ledger expanding, though at a moderate pace, and a recession at bay for now.