Economy

US economy added 315,000 jobs in August

The pace of US jobs growth slowed in August after an unexpected acceleration the previous month and the unemployment rate ticked up, in an encouraging sign for the Federal Reserve as it seeks to cool down the economy.

The world’s largest economy added 315,000 positions last month, just above economists’ forecasts. That compares with the downwardly revised 526,000 jobs created in July, which has helped to anchor the unemployment rate at a multi-decade low.

Despite August’s gains, the jobless rate edged up 0.2 percentage points to 3.7 per cent.

The data, released by the Bureau of Labor Statistics on Friday, underscored the labour market on the whole remains robust, even as the Fed has embarked on its most hawkish monetary tightening since the early 1980s.

Economists have expected the pace of monthly jobs growth to slow, especially as most of the losses caused by the coronavirus pandemic have been recouped. But employers are still grappling with widespread labour shortages, meaning they are having to compete fiercely to retain workers and hire new ones.

Data released earlier this week indicate there are still roughly two vacancies per unemployed worker, indicating little softening of the extremely tight labour market.

As such, wages nationwide have risen significantly, sparking concerns of a feedback loop whereby companies are forced to charge more for their products and services to cover these expenses, leading workers to demand even higher pay.

Average hourly earnings rose again in August, with wages up 0.3 per cent for the month, or 5.2 per cent on an annual basis. Meanwhile, the labour force participation rate, which tracks the share of Americans either employed or actively looking for work, rose only slightly to 62.4 per cent, still below its pre-pandemic level.

For US central bankers, the resilience of the labour market emphasised just how much more monetary tightening will be necessary in order to sufficiently cool the economy down.

Confronted by the worst inflation in four decades, the Fed is debating how high to raise interest rates and for how long to keep them at a level that actively restrains economic activity.

The August jobs data help to inform whether the Fed will proceed with a third consecutive 0.75 percentage point interest rate increase at its policy meeting later this month, or move to half-point increments. In just four months, the target range of the federal funds rate has jumped from near zero to between 2.25 per cent and 2.50 per cent.

Most officials see rates rising to at least 3.5 per cent this year, with additional increases expected next year.

In his most hawkish remarks to date, chair Jay Powell pledged last week that the central bank would “keep at it” until it has restored price stability, admitting that the process is likely to involve a sustained period of lower growth, higher unemployment and “some pain” for households and businesses.

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