The report showed that the US economy added 187,000 jobs in August - bizarrely, the exact same number it added in July. It was also less than economists had predicted, but not necessarily a “weak” report.
Julia Pollak, chief economist at ZipRecruiter, told US media that the US labor market had returned to its “normal pre-pandemic climate.”
“The question going forward is whether this will be the sustainable long-term condition of the labor market or whether we will cross below the pre-pandemic level to something slower and cooler,” she added.
However, unemployment ticked up significantly, increasing from 3.5% to 3.8% as another 514,000 people were added to the jobless ranks, for a total unemployed workforce population of 6.4 million.
“Both measures are little different from a year earlier, when the unemployment rate was 3.7% and the number of unemployed persons was 6.0 million,” the BLS report noted.
As always, the official unemployment numbers in the BLS report, which are those that get reported in the media and by the administration, include only workers regarded as being part of the workforce. However, as the report also notes, in addition to the 6.4 million officially unemployment people, there are another 5.4 million “not in the labor force who currently want a job,” which it explains are referred to separately because they “were not counted as unemployed because they were not actively looking for work during the 4 weeks preceding the survey or were unavailable to take a job.”
In other words, the true unemployment rate is almost twice what the headlines say.
The report also noted that hourly wages likely rose faster than inflation, increasing 4.3% in August over the year prior. However, the August consumer price index report, which tracks inflation, has not yet been released.
Inflation is at the heart of investors’ concerns about the BLS report, since its meaning will help them in their attempts to augur the Federal Reserve’s likely decision at its meeting later this month.
Last week, Fed Chairman Jerome Powell said the central bank was “prepared to raise rates further if appropriate,” which hit their highest point in more than 20 years following the Fed’s last meeting in July.
Raising interest rates is the central bank’s chief and preferred weapon against inflation since doing so slows down the economy, but it carries a risk of triggering a rise in unemployment and even a recession. Investors have remained wary amid the bank’s aggressive moves since the Spring of 2022 to put a stop to record-high inflation in the US, with some trends suggesting they still anticipate a recession in the coming months.
The Fed’s stated goal is to get inflation below 2% per year; the July report showed it was at 3.2%.
Stocks at the New York Stock Exchange opened higher on Friday, with the Dow Jones quickly gaining 200 points on the news of the jobs report. According to the CME FedWatch Tool, which analyzes the probability of impending fiscal policy changes, the chance the Fed won’t raise interest rates in November - which is three meetings away - jumped from 58.9% to 65% on Friday.
It should be noted that investors were also reacting to another BLS report, the ISM manufacturing index, which showed that the US had retained more manufacturing industry than it was expected to over the last month.
“The US manufacturing sector shrank again, but the uptick in the PMI indicates a slower rate of contraction. The August composite index reading reflects companies managing outputs appropriately as order softness continues, but the month-over-month increase is a sign of improvement,” Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, wrote in a note quoted by US media.