The Bureau of Labor Statistics reported that the U.S. economy added 315,000 jobs in August which was slightly below analysts' consensus estimates of 318,000 jobs added. However, it's another data point supporting the 'soft landing' scenario, as we are seeing evidence that the economy is slowing, inflation pressures are relieving, yet, there is enough underlying strength to prevent the broad economy from rolling over into a recession.
Another positive from the report is that the unemployment rate increased from 3.5% to 3.7% as more people entered the labor force. The labor force participation rate reached 62.4% which is tied for the highest of the year. This is another positive, for the inflation picture, as an increase in the labor supply can offset wage inflation. Although, some detractors argue that inflation is pushing retirees and others on fixed income back into the workforce.
There were also more indications of cooling in the labor market as the August figure was the lowest monthly gain since April of 2021. It was also a sharp drop from 526,000 jobs added in July.
On the wage front, there was some moderation as well. Average hourly earnings were up 0.3% on a monthly basis and 5.2% compared to last year. Both came in below estimates of 0.4% and 5.3%, respectively. Given inflation of around 8%, it continues to mean that workers are falling behind in terms of real incomes.
The strongest contributors to job growth continue to be professional and business services which added 68,000 jobs. Healthcare contributed 48,000, while retail added 44,000. There was some cooling in the leisure and hospitality sectors which increased by 31,000. This is a notable slowdown as the group has averaged 90,000 new jobs in the first 7 months of the year. This is the sector with the biggest gap between pre-pandemic and post-pandemic.
Initially, stocks had a positive reaction to the number as it is somewhat of a 'Goldilocks' figure that is strong enough to discount recession fears but not strong enough to generate further inflation pressures. However, stocks did give up these early gains to finish more than 1% lower as investors seem more focused on the Federal Reserve's recent hawkish commentary.