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The U.S. economy is expected to add fewer jobs in August vs. July but still stay in the sweet spot. The Bureau of Labor Statistics’ Employment Situation Report, due out on Friday, will be key for the Federal Reserve in determining whether it should stop hiking interest rates.
Economists, on average, expect 170K new jobs in August, down slightly from the 187K climb in July. The unemployment rate is seen staying near 50-year lows at 3.5%. The Fed, in its battle to bring inflation down to its 2% target, wants to see two things: moderating job growth and a still-low jobless rate.
Joseph Brusuelas, chief economist at RSM U.S., sees nonfarm payrolls coming in at 150K, citing “rock solid” conditions of the U.S. consumer. “We still expect a 3.6% unemployment rate inside what will likely be a quirky late summer jobs report,” he wrote in an X post dated Wednesday.
The labor force participation rate, or the percentage of the population that is either working or actively looking for work, is also expected to be unchanged at 62.6%. Average hourly earnings growth is forecast to stay at 4.4% Y/Y, and ease to 0.3% M/M from 0.4% M/M in July.
In its effort to squash inflation by jacking up interest rates, the Fed has been wanting to see more slack in the jobs market. Indeed, an overall imbalance between labor demand and supply is causing wages to remain elevated, but a batch of data this week have pointed to just what the Fed wants to see: moderating labor demand. Wednesday’s ADP jobs report, for example, showed companies in August added the least amount of jobs in five months.
What’s more, the BLS’ JOLTS, short for Job Openings and Labor Turnover Survey, revealed the number of job openings in July unexpectedly fell to the lowest level since early 2021. Also, job cuts announced by employers more than tripled in August vs. July. One outlier this week was initial jobless claims, a leading indicator, slipping below the consensus estimate.
Also in the Fed’s favor, the dual strikes in Hollywood are expected to impact Friday’s jobs data as many companies support the movie and television industry.
SA analyst Christopher Robb is confident that August’s jobs report will show “something in line with a soft-landing narrative that continues the trend from the last three reports,” citing a steady decline in worker quits.
Robb pointed out some some risks that could, in turn, counter his hypothesis, including the potential for workforce increases from immigration. “This could lead to a level of job growth that pushes wage pressure outside of the Goldilocks zone needed for inflation to keep coming down without Old Testament labor market carnage.”