August 2023 Employment Report

The unemployment rate rose significantly in August as the summer of 2023 came to a close, signaling a slowdown in the job market.

According to the U.S. Bureau of Labor Statistics, nonfarm payrolls grew by a seasonally adjusted 187,000 for the month, surpassing the Dow Jones estimate of 170,000.

However, the unemployment rate unexpectedly increased to 3.8% in August, the highest since February 2022. Previous month estimates were also revised downward. This rise in joblessness coincided with an increase in the labor force participation rate, reaching 62.8%, the highest since February 2020, just before the declaration of the Covid pandemic.

Additionally, the more comprehensive measure of unemployment, which includes discouraged workers and those working part-time for economic reasons, rose to 7.1%, the highest since May 2022.

Average hourly earnings experienced a 0.2% increase for the month and a 4.3% increase from a year ago. These figures fell below the respective forecasts of 0.3% and 4.4%, suggesting a possible easing of inflation pressures.

“The U.S. labor market continues to transition from a rapid pace to a steadier growth phase,” said Nick Bunker, head of economic research at the Indeed Hiring Lab. “A slowdown is necessary in order to sustain long-term progress.”

The healthcare sector showed the largest gain in jobs, adding 71,000. Other industries also experienced growth, including leisure and hospitality (40,000), social assistance (26,000), and construction (22,000). However, the transportation and warehousing sector lost 34,000 jobs, and the information sector declined by 15,000.

Although nonfarm payrolls continued to exceed expectations, previous month counts were revised significantly lower. The July estimate was revised down by 30,000 to 157,000, and the June count was revised lower by 80,000 to 105,000.

The unexpected increase in the jobless rate was accompanied by a rise in the number of unemployed individuals by 514,000. However, the household count of those employed also increased by 222,000.

August’s jobs report is of particular importance as the Federal Reserve evaluates its monetary policy. While a rate increase is not expected at the upcoming meeting in September, market pricing suggests a 38% probability of a hike at the later meeting in October.

“This report aligns with Fed expectations,” said Dan Greenhaus, chief economist and strategist at Solus Alternative Asset Management. “The labor market continues to slow down, and I don’t believe this report significantly changes the Fed’s outlook.”

Recent data presents a mixed picture of the economy’s trajectory. Overall growth remains steady, fueled by consumer spending, but the labor market is showing signs of loosening from its historically tight conditions.

The number of job openings fell to 8.83 million in July, the lowest since March 2021 but still higher than pre-pandemic levels. This equated to 1.5 openings for every unemployed worker according to the BLS.

Inflation has also shown signs of cooling, despite remaining above the Fed’s target. In July, personal consumption expenditures prices rose just 0.2%, resulting in a 3.3% 12-month gain or 4.2% when excluding food and energy.

Consumer spending remained strong in August, increasing by 0.6% when adjusted for inflation, even though real disposable personal income fell by 0.2%. Households have been using credit cards and savings to compensate, leading to a decline in the personal savings rate.

The Commerce Department reported that gross domestic product for the second quarter increased at a 2.1% annualized rate, below the initial estimate of 2.4%. However, the Atlanta Fed is tracking third-quarter GDP growth at a robust 5.6% pace, contradicting expectations of a recession.