REAL ECONOMY BLOG | September 02, 2022
American labor market dynamics remain tilted toward sustained strength in hiring and rising wages.
In August, U.S. total employment increased by 315,000 while the unemployment rate increased to 3.7%.
In August, U.S. total employment increased by 315,000 while the unemployment rate increased to 3.7% (3.65%). The labor force participation rate advanced to 62.4% on the back of 786,000 people returning to the labor force.
While the three-month average annualized pace in average hourly earnings has decelerated to 4.9%, hiring remains robust across just about all industries including the goods producing, construction and manufacturing sectors.
These industries are notoriously rate sensitive and are not cooling at a pace that implies any near-term pause or hold in the Federal Reserve’s efforts to restore price stability.
This data will do little to derail the Fed from its current monetary policy path. We call on the Fed to lift the policy rate by 75 basis points at its next meeting later this month and it should attempt to lift the federal funds rate to 4% by the end of the year.
We call on the Fed to lift the policy rate by 75 basis points at its next meeting.
With inflation at intolerable levels, it is critical that the Fed put inflation back in the box sooner rather than later. The longer the central bank holds off on doing so, the more expensive it will be to push inflation back toward its 2% target.
Why is this so urgent? Because the increase in inflation over the past two years carries with it an identifiable cost in terms of jobs lost.
To reduce inflation to acceptable levels—using the personal consumption expenditures index as our preferred metric—it will be necessary to destroy between 1.7 million and 5.3 million jobs, in our estimation. That decline would translate to an unemployment rate that rises to a minimum of 4.6%, or possibly as high as 6.7%.
Total private sector employment increased by 308,000 jobs, driven by a 263,000 increase in service-sector employment. Higher-paying goods-producing jobs increased by 45,000, construction jobs added 16,000 and manufacturing employment advanced by 22,000.
Trade and transport grew by a strong 65,000 jobs, retail trade by 44,000, information by 7,000, financial sector employment by 17,000, while business services jumped by 68,000. Temporary help increased by 12,000.
Education and health hiring increased by 68,000 jobs, with leisure and hospitality hiring rising by 31,000. Overall government employment advanced by 7,000 jobs.
Total private sector hours worked weekly was 34.5 while aggregate hours worked remained essentially unchanged at 113 and was up by 2.6% at a three-month average annualized pace.
The median duration of unemployment remained at 8.5 weeks, which implies that most people who lose jobs or quit to find new ones are not having much of a problem finding employment.
Labor market demand remains hot, and there is little in the August jobs report that implies it has significantly cooled eight months into the Federal Reserve’s rate hike campaign.
Given the fact that rate-sensitive sectors continue to illustrate strong demand for labor and are willing to pay rising wages to obtain it, one should anticipate that the central bank will read this data as a continuation of the current trend and will move forcefully at its September meeting to lift the policy rate by 75 basis points.
This article was written by Joseph Brusuelas and originally appeared on 2022-09-02.
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