August Jobs Report: Job Market Falling Back to Slowing Trend

The latest jobs numbers are out from the U.S. Bureau of Labor Statistics. What do they mean for job seekers, employers and investors? Here’s a quick take from Glassdoor Senior Economist Daniel Zhao.

The job market is returning to trend in August, following a blockbuster report in July. Employers added 315,000 jobs in August, down significantly from 526,000 jobs added in July, but consistent with the softer job gains in spring 2022 and the overall slowing economy. The unemployment rate did rise to 3.7 percent, though on the back of improving labor force participation. Even as the economy slows and rates rise, the labor market is a seawall holding back a rising tide of recession fears as job gains continue at a healthy pace.

Jobs Growth Falls Back To Slowing Trend

Payroll employment rose by 315,000 in August. July’s blockbuster job gains were largely unrevised falling to 526,000 from the originally reported 528,000. August’s jobs growth of 315,000 is middle of the pack for spring 2022 jobs growth which ranged from 293,000 in June to 398,000 in March.

Job gains were largely driven by service sectors like professional & business services (+68,000 jobs), health care & social assistance (+61,500) and retail (+44,000). However, goods-producing industries still added 45,000 jobs with ongoing job gains in industries like construction (+16,000), despite rising interest rates and a cooling housing market. Tech industries like information (+7,000) continue to add jobs even with prominent reports of layoffs, as tech workers remain in high demand for their skills.

Unemployment Rises But Not Cause for Panic

The unemployment rate rose to 3.7 percent, rising off the five decade low hit last month. Given how low the unemployment rate is now and the slowing economy, ongoing improvement in the unemployment rate is likely to be inconsistent.

However, the rise in unemployment is not an immediate red flag as it was married with a rising labor force participation rate, jumping to 62.4 percent from 62.1 percent in July, the highest level since March and a reversal of recent declines. Similarly, prime-age labor force participation rose to 82.8 percent, the highest level since February 2020 (83 percent).

Rebounding labor force participation is an encouraging sign for the Fed that there are still workers available to join from the sidelines, relieving some pressure in the job market by supporting job gains without adding more pressure on wages.

Wage Growth Moderates in Encouraging Sign for Fed

Average hourly earnings rose 5.2 percent year-over-year in August, the same as in July. But month-over-month growth in average hourly earnings decelerated, rising 0.3 percent, the slowest rate since February 2022. This helps relieve some pressure for the Federal Reserve as it hopes to tamp down potential drivers of inflation in the labor market.

Conclusion

Today’s jobs report shows that the job market still has some gas left in the tank. Job gains came in strong and despite the increase in unemployment, rising labor force participation is an encouraging sign. In particular for the Fed, cooling wage growth and rising labor force participation keep the labor market on course for a soft landing where job gains can continue without adding to inflationary pressures. As the economy slows, the labor market is not buckling under the weight of rising rates.

More Insights

Job gains fell back to trend in August, with 315,000 jobs added, more in line with the slower job gains from the spring. July's blockbuster job gains seem like a positive fluke, though they largely held up to revisions, revised down only 2,000.

Unfortunately, today's revisions pushed July's payroll employment below pre-pandemic levels, but no worries, instead we hit the milestone in August instead. As of August 2022, payroll employment is back to pre-pandemic levels.

Job gains were broad-based again in August. While services like health care, professional & business services and retail led job gains, goods-producing sectors also saw healthy job gains. For example, construction added 16,000 jobs despite the cooling housing market.

Goods-producing sectors like construction & manufacturing are just above pre-pandemic job levels. Education & health services is closing in to pre-pandemic employment levels. The largest remaining job shortfalls are still in leisure & hospitality and government.

Average hourly earnings were up 5.2 percent year-over-year, flat compared to July. However, month-over-month growth was only 0.3 percent (3.8 percent annualized), the slowest rate since February 2022.

For production & nonsupervisory workers in leisure & hospitality and transportation & warehousing, year-over-year wage growth has slowed dramatically in recent months as the pandemic-era labor shortages facing these sectors starts to moderate.

The unemployment rate rose to 3.7 percent in August, up off the five-decade low hit in July. The increase is not a good sign and is a canary in the coal mine to watch for in coming months, even though it was married with an encouraging rise in labor force participation in August.

The labor force participation rate rebounded to 62.4 percent, erasing the softening we've seen since March and also tying the highest level during the recovery. Rebounding labor force participation is an encouraging sign for a Fed hoping to see easing pressure in the job market.

In particular, prime-age labor force participation is a star metric for this report, rising to 82.8 percent, the highest level we've seen since the pandemic began and just shy of the pre-pandemic level (83.0 percent in February 2020).

One key exception to the encouraging labor force participation trend in August: Black labor force participation fell in August, extending a three-month streak of declining labor force participation and in contrast to the improvements for other groups.

And that's contributing to a widening gap in the unemployment rates for Black & white workers. The Black unemployment rate is now up 0.6 percentage points from its recovery low of 5.8 percent, reached in June.