The Labor Department reported Friday that unemployment rose to 3.8% last month in a sign that the US economy is cooling, even as US employers added a better-than-expected 187,000 jobs.
The stiff unemployment figure for August surprised economists, who had expected the US Bureau of Labor Statistics would report 3.5% joblessness across the US, even with July.
Meanwhile, although economists had expected the US would add just 170,000 jobs versus the 187,000 that were reported on Friday, the higher number was chalked up partly to greater participation in the labor force.
It was the third straight month that fewer than 200,000 jobs were added and follows recent downward revisions to US jobs data.
Stocks were spiking in premarket activity as traders bet that the data point to a “soft landing” for the US economy rather than a recession. Following the release of the Friday data, traders slashed the likelihood of a rate hike at the Fed’s November meeting from nearly 50% to about 35%.
“We are beginning to see this slow glide into a cooler labor market,’’ said Becky Frankiewicz, chief commercial officer at the employment firm ManpowerGroup. “Make no mistake: Demand is cooling off. … But it’s not a freefall.’’
The Labor Department also reported that US average hourly wages rose 0.2% in August compared to the previous month. Wages were also up 4.3% compared to a year ago, slower than last year but well ahead of their pre-pandemic pace.
Manufacturing payrolls rose by 16,000 compared to the previous month, according to Labor Department data.
The latest sign that the pace of hiring is losing some momentum — without going into a nosedive — would be welcomed by the Federal Reserve, which has been trying to tame inflation with a series of 11 interest rate hikes.
The Fed is hoping to achieve a rare “soft landing,” in which it would manage to slow hiring and growth enough to cool price increases without tipping the world’s largest economy into a recession.
Economists have long been skeptical that the Fed’s policymakers would succeed.
But optimism has been growing. Since peaking at 9.1% in June 2022, year-over-year inflation has dropped more or less steadily. It was 3.2% in July.
But the economy, though growing more slowly than it did during the boom that followed the pandemic recession of 2020, has defied the squeeze of increasingly high borrowing costs.
The gross domestic product — the economy’s total output of goods and services — rose at a respectable 2.1% annual rate from April to June.
Consumers continued to spend, and businesses increased their investments.
The Fed wants to see hiring decelerate because strong demand for workers tends to inflate wages and feed inflation.
So far, the job market has been cooling in the least painful way possible — with few layoffs.
And the Labor Department reported Thursday that the number of Americans applying for unemployment benefits — a proxy for job cuts — fell for a third straight week.
“Employers aren’t wanting to let their existing talent go,’’ Frankiewicz said.
Instead of slashing jobs, companies are posting fewer openings — 8.8 million in July, the fewest since March 2021.
And American workers are less likely to leave their jobs in search of better pay, benefits and working conditions elsewhere.
In July, 3.5 million people quit their jobs, the fewest since February 2021.
A lower pace of quits tends to ease pressure on companies to raise pay to keep their existing employees or to attract new ones.
Average hourly earnings aren’t growing as fast as they did last year, either. In March 2022, average wages were up 5.9% from a year earlier.
Nancy Vanden Houten, lead US economist at Oxford Economics, noted, though, that annual average pay increases need to slow to around 3.5% to be consistent with the Fed’s 2% inflation target.
Still, economists and financial market analysts increasingly think the Fed may be done raising interest rates.
Nearly nine in 10 analysts surveyed by the CME Group expect the Fed to leave rates unchanged at its next meeting on Sept. 19-20.