The unemployment rate rose to 3.8 percent from 3.5 percent as more people started looking for work. The labor force — the number of people with a job or seeking one — grew by 736,000. The participation rate — or percentage of adults in the workforce — rose to the highest level since the pandemic hit in early 2020.
On the other hand: The Labor Department revised lower the previously reported hiring gains for June and July by 110,000 jobs. (Such tweaks are routine). That left the average increase for the past three months at 150,000, well off the pace of earlier in the year.
What it means: The tight-as-a-drum labor market is loosening up as sharply higher interest rates weigh on the economy. But the falloff in job growth hasn’t been precipitous, leaving hiring and unemployment at the solid levels of 2019. The August numbers are further evidence that the Federal Reserve may be able to pull off an improbable soft landing — taming inflation, which has already fallen significantly, without causing a painful recession.
“This mixed report will likely give the Fed enough comfort to pause rate increases at its meeting later this month,” said Eric Merlis, managing director and co-head of global markets at Citizens Bank.
The market reaction: The Standard & Poor’s 500 index rose 0.5 percent. The yield on two-year Treasuries, which reflects expectations for Fed rate actions, dipped to 4.79 percent.
Digging deeper: Average hourly earnings rose just 0.2 percent in August from the previous month, half the average increase in May through July. Over the past year, wages rose 4.3 percent.
“While wage growth remains well above the Fed’s comfort zone, recent data points to a gentle moderation in labor cost pressures,” said Gregory Daco, chief economist at accounting and consulting firm Ernst & Young.
Daco noted that average hours worked rose 0.3 percent, reversing a trend of employers cutting the work week.
Looking at industry sectors, health care, leisure and hospitality, social assistance, and construction posted the biggest job gains. Transportation and warehousing lost 34,000 jobs, mostly at Yellow, which folded after filing for bankruptcy.
The participation rate rose to 62.8 percent in August, the first increase since March. For workers in the prime age group of 25-54 the rate was 83.5 percent, matching a 20-year high.
Parting thought: A gradually cooling jobs market takes pressure off the Fed to boost rates even though its preferred inflation measure ticked up in July. It can afford to see how things play out when policy makers meet again on Sept. 19-20.
And the jobs report is good news for President Biden’s reelection campaign, which would benefit if borrowing costs didn’t go much higher and the economy held its own.
“The report has soft landing written all over it,” Mark Zandi, chief economist at Moody’s Analytics, said on the social media site formerly known as Twitter.