Jobs report is likely to show another month of modest but steady hiring gains

WASHINGTON — The U.S. labor market continues to provide reliable employment every month, enough to give Americans the confidence and wages to keep spending and sustain the economy. Still, the pace of hiring has lost momentum in recent months, suggesting employers have become more cautious.

September probably brought more of the same. The Labor Department is expected to report Friday that employers added a decent but hardly spectacular 140,000 jobs last month, roughly matching the 142,000 jobs in August, according to forecasters polled by the data firm FactSet.

“We will see modest employment gains, not that big, but enough to move the economy forward,” said Brian Bethune, an economist at Boston College.

The resilience of the economy comes as a relief. Economists had expected the Federal Reserve’s aggressive campaign to curb inflation — it raised rates 11 times in 2022 and 2023 — would trigger a recession. That didn’t happen. The economy continued to grow, even despite rising borrowing costs for consumers and businesses.

Last month the The Fed started cutting interest ratespartly to try to support the slowing labor market. And, as Bethune noted, the once-improbable prospect of a “soft landing” — in which high interest rates help fight inflation without causing a recession — “is already safe.”

The economy is weighing heavily on voters as the November 5 presidential election approaches. Many Americans are unimpressed with the sustainability of the labor market and remain frustrated by high prices, which remain an average of 19% above February 2021 levels. That’s when inflation started to rise as the economy recovered from the pandemic recession with unexpected speed and strength. , causing serious shortages of goods and labor.

Across the economy, most indicators look solid. The U.S. economy, the world’s largest, grew at a strong annual pace of 3% from April through June, boosted by consumer spending and business investment. A forecasting tool from the Federal Reserve Bank of Atlanta points to slower but still healthy annual growth of 2.5% in the just-ended July-September quarter.

On Thursday, the Institute for Supply Management, an association of purchasing managers, reported that U.S. services business grew for the third month in a row in September and at an unexpectedly fast pace. The service sector of the economy is closely watched because it represents more than 70% of U.S. jobs.

Last month, the country’s households increased their spending at retailers. And even as hiring has slowed, Americans are enjoying extraordinary job security. The number of layoffs as a percentage of employment is near a record low. The number of people apply for unemployment benefits also remains at a historically low level.

Companies generally seem reluctant to let workers go, even as they hesitate to expand their payrolls. That unusual dynamic may reflect the fact that many employers have been found flat-footed and short-staffed after the economy began to pull back from the pandemic recession.

Employers added an average of just 116,000 jobs per month from June through August, including a dismal 89,000 in July. That was the weakest three months of hiring since mid-2020. Hiring is down from a record average of 604,000 per month in 2021 at the end of the COVID recession and 377,000 in 2022.

Posted vacanciesThe population has also fallen steadily, to 8 million in August, after a peak of 12.2 million in March 2022.

Employees have noticed the colder environment for job seekers. Far fewer people feel confident enough to quit their job and look for a better position. The Labor Department reported this week that the number of Americans is quit their jobs fell to the lowest level since August 2020, when the economy was still reeling from COVID.

Job hopping is also no longer as lucrative as it used to be. Last month, those who changed jobs earned 6.6% more than a year earlier – a 1.9 percentage point premium over the average 4.7% wage gain of those who stayed on. The job jumping premium used to be much higher — peaking at 8.8 percentage points in April 2022, according to Liv Wang, chief data scientist at ADP Research.

It appears that two and a half years of high interest rates have taken their toll on the labor market. But perhaps relief will come.

The Fed cut its key interest rate by a significant half percentage point last month – the first and biggest rate cut since the 2020 recession. The central bank says it is encouraged by the progress in its fight against inflation. Consumer prices rose 2.5% from a year earlier in August, barely above the Fed’s inflation target of 2%, and fell dramatically from a year-over-year peak of 9.1% in June 2022.

Friday’s jobs report could bring more good news on inflation. Diane Swonk, chief economist at tax and consulting firm KPMG, said she expects average hourly wages rose 0.2% last month, compared with a 0.4% increase in August. According to her, this would translate into a gain of 3.7% compared to a year earlier. That’s close to the 3.5% that many economists say is consistent with the Fed’s inflation target. Such a decline would ease pressure on employers to pass on the costs of higher wages by raising prices and thereby fuel inflation.

The Fed’s focus shifted to supporting the labor market as hiring slowed this summer and unemployment rose, even as it remained relatively low. The central bank has indicated that it expects to cut its policy rate twice more this year – probably by modest quarter points – and a further four times in 2025.

Expectations of lower borrowing costs could prompt employers to increase the pace of hiring.

“They see light at the end of the tunnel of this monetary tightening that has been going on for a few years,” Bethune said.