August Job Gains Keep Fed Tightening on Track

Job growth slowed in August, but the market is still tight enough to keep the Fed on track to continue raising interest rates, economists said Friday.

The U.S. Bureau of Labor Statistics reported there were 152.7 million seasonally adjusted jobs in August, an increase of 315,000 from July and up 4% from a year earlier. The unemployment rate was 3.7% in August, up from 3.5% in July, but down from 5.2% in August 2021.

CUNA Senior Economist Dawit Kebede said the report showed the nation had about 250,000 more jobs than it did before COVID-19 was declared a pandemic in March 2020.

However, about 800,000 people joined the labor market, raising the participation rate to 62.4% in August from 62.1% in July and contributing to the rise in the unemployment rate.

“This is a strong jobs report indicating a resilient economy despite slowing signs in some other areas,” Kebede said. “There are two job vacancies available for each unemployed person creating a very tight labor market. This can lead to inflationary wage increases.”

Average hourly earnings were $32.36 in August, up 5.2% from a year earlier and up 0.3% from July.

Kebede, NAFCU Chief Economist Curt Long and Mike Fratantoni, chief economist for the Mortgage Bankers Association, agreed that the report was likely to bolster the Fed’s commitment to raise rates. Kebede has said he expects the Fed to raise the federal funds rate to 3.4% by year’s end.

The Fed’s Open Market Committee (FOMC) meets three more times this year. Before its next meeting on Sept. 20-21, it will have a chance to review the August inflation report to be released Sept. 13.

“The August jobs report gave the FOMC exactly what they want,” NAFCU’s Long said. “Job growth came down from the stratospheric heights of the prior month but remained plenty strong enough to ward off fears of a recession.”

“More important was the improvement in labor force participation,” he said. “That should relieve some of the tautness in the labor market and allay concerns about labor shortages feeding inflationary pressures.”

The BLS reported Aug. 10 that its seasonally adjusted Consumer Price Index showed no change from June to July and was up 8.5% from a year earlier. In June it was up a record 9.1% from a year earlier and up a seasonally adjusted 1.3% from May.

Fratantoni, the MBA economist, said the jobs report and other data “indicate an economy that is still growing, but perhaps at an inflection point.”

“The housing market is reeling from the hit to affordability from the spike in mortgage rates and much higher home prices,” Fratantoni said. “While these data don’t promise any near-term relief on rates, the strong job market will continue to support housing demand as household incomes continue to grow at a brisk pace.”