The economy added 142,000 jobs in August, versus 89,000 the month before, and the unemployment rate fell a tenth of a percentage point to 4.2%, the Bureau of Labor Statistics reported on Friday.
Investors had expected roughly 164,000 new jobs and for the unemployment rate to tick down to 4.2%.
The interpretation
“It’s a little weak on the headline,” Dan North, a senior economist with Allianz Trade Americas, told the Washington Examiner. “For us, this isn’t going to change the Fed’s thinking for September at all."
North said the Federal Reserve was likely to cut its interest rate target by a quarter percentage point at its meeting later this month.
What it means ... for Biden
The report is some unwelcome news for President Joe Biden, who is suffering from high disapproval ratings related to his handling of the economy, and for Vice President Kamala Harris. She and Democrats are running low on time to turn around voter perceptions of the party’s handling of the economy before the election.
Friday’s jobs number is the second-weakest of the post-pandemic era.
What it means for ... the Fed
The Fed is likely to interpret the report as an indication that its efforts to tame inflation via interest rate hikes are slowing the momentum in the economy.
Fed Chairman Jerome Powell said last month that officials at the central bank “do not seek or welcome further cooling in labor market conditions.”
The report does show some additional cooling, so it weighs in favor of the Fed pursuing a larger rate cut at its monetary policy meeting later this month. Immediately following the report, traders were split on whether the Fed would cut its target by a quarter percentage point or half a percentage point, which would be an aggressive effort by historical standards.
The underlying reality
It is important not to read too much into any one jobs report. The payroll numbers bounce around from month to month and are revised in subsequent reports.
Instead, it is helpful to look at the trend. The three-month moving average of job gains fell in August to 116,000, just above the rate needed to keep up with population growth.
Roughly 110,000 new payroll jobs are needed each month to keep unemployment from rising, according to the Federal Reserve Bank of Atlanta. Note, though, that a separate estimate that takes into account the full extent of recent immigration puts the number as high as 200,000.
Prime-age employment, relative to the overall population, is strong by historical standards.
Recession watch
The unemployment rate, taken from the jobs report's household survey, is still low by historical standards. It fell in August but has been creeping up over the past year.
Recessions entail a rising unemployment rate.
Friday's data suggest that the United States has triggered one major recession indicator — namely, when the three-month moving average of the unemployment rate rises half a percentage point relative to its minimum point over the past year. This indicator, known as the Sahm Rule, signaled the start of all postwar recessions.
Industries to watch
The leisure and hospitality sector is just above the levels of employment it reached in February 2020, right before restaurants and bars were forced to shut down across the country.
Construction employment has remained robust, even as the housing market has taken a massive hit over the past few years, as mortgage rates have soared alongside the Fed's rate hikes. That's in part because of a huge backlog of the construction of multifamily housing over the past year. Economists will watch closely for any sign of slowing hiring in construction.
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Unemployment rates by race and ethnicity
The household survey also includes unemployment rates by race and ethnicity. Rates for all groups neared record lows in the past few years but have drifted up recently.
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