The U.S. economy saw an increase of 187,000 jobs in August, which aligns with analysts’ expectations. However, the unemployment rate surged to 3.8%, according to the Department of Labor’s report on Friday.
A survey conducted by data firm FactSet revealed that analysts had predicted the addition of 170,000 jobs last month.
Various industries experienced growth in employment, including health care, leisure and hospitality, social assistance, and construction. However, transportation and warehousing sectors reported a decline in jobs.
The recent labor market challenges have impacted the unemployment rate. Factors contributing to the high rate are the ongoing strikes by the Screen Actors Guild, American Federation of Television and Radio Artists, and Writers Guild of America. Additionally, the bankruptcy of Yellow, a trucking company, has had a negative impact on job gains.
Although the unemployment rate is historically low, it reached its highest level in August since early 2022.
“Although the unemployment rate rose to 3.8%, the highest in 18 months, from 3.5%, it may not be as concerning as it appears. This increase was driven by a significant surge of 736,000 in the labor force, with household employment rising by a relatively healthy 222,000,” Andrew Hunter, deputy chief U.S. economist at Capital Economics, explained in a report.
The current conditions of the labor market indicate a return to pre-pandemic norms. This situation may lead the Federal Reserve to pause hikes or even consider cutting interest rates in the first half of next year.
“The decline in wage pressures and the increase in labor force participation are encouraging signs, confirming a softening in labor market conditions, which aligns with the objectives of Fed officials,” noted Rubeela Farooqi, chief U.S. economist at High Frequency Economics.
“We believe these data support the case for no rate hike at the September FOMC meeting,” she added. “However, regarding the rate path beyond September, our base scenario is that the Fed has reached the end of the rate hiking cycle. Nevertheless, with the economy reaccelerating and the potential for inflation, we cannot completely rule out another rate increase later this year.”
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