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President Joe Biden on Friday celebrated the news that the U.S. economy added 315,000 jobs in August – slightly below expectations – and the unemployment rate rose to 3.7%, nearly to pre-pandemic levels.
‘More great news,’ the president tweeted. ‘Our jobs market remains strong. Even more Americans are coming back to work. We’re in the midst of an historic manufacturing boom with historic new factory announcements this week.’
The numbers, however, indicate American employers slowed their hiring last month in the face of rising interest rates, high inflation and sluggish consumer spending, all of which have weakened the outlook for the economy and led to fears of a recession.
The August job numbers were down from the 526,000 jobs added in July and below the average gain of the previous three months.
The smaller August gain will likely be welcomed by the Federal Reserve.
The Fed is rapidly raising interest rates to try to cool hiring and wage growth, which have been consistently strong. Businesses typically pass the cost of higher wages on to their customers through higher prices, thereby fueling inflation.
Fed officials hope that by raising borrowing costs across the economy, they can reduce inflation from a near-40-year high. Some economists fear, though, that the Fed is tightening credit so aggressively that it will eventually tip the economy into recession.
The economy has been on a 20-month hot streak economists have predicted for months the hiring boom would start to peter out as the post-pandemic recovery stablized.
President Joe Biden on Friday celebrated the news that the U.S. economy added 315,000 jobs in August
Federal Reserve Chair Jerome Powell said last week the Fed needs to keep interest rates elevated enough ‘for some time’ to slow the economy
The hot jobs market has the Federal Reserve concerned as it struggles to rein in high rates of inflation.
Fed Chair Jerome Powell Powell has made it clear his priority is to bring down inflation. He said last week the Fed needs to keep nterest rates elevated enough ‘for some time’ to slow the economy.
Many economists believe that will lead to the reversal of some interest rates with investors speculating as to how much and when the next hike will be. Fed officials raised rates from near zero in March to a range of 2.25 to 2.5 percent in July.
The Fed is considering an increase of either a half percentage point or three-quarters of a point at their meeting on Sept. 20-21. The central bank has projected that its key rate will reach a range of 3.25% to 3.5% by year´s end.
‘Our decision at the September meeting will depend on the totality of the incoming data and the evolving outlook,’ Powell said last week.
Job openings remain high and the pace of layoffs low, indicating that most businesses still want to hire and that the economy isn´t likely in, or even close to, a recession. The broadest measure of the economy´s output – gross domestic product – has shrunk for two straight quarters, meeting one informal definition of a recession.
Economists worry about a possible recession as the Fed Reserve tries to rein in high inflation
Most economists, though, don´t think a recession will have begun until the unemployment rate has risen steadily.
But worries about a recession grew after Powell, in his high-profile speech last week, made clear that to curb inflation, the Fed was prepared to continue raising short-term interest rates for the foreseeable future and to keep them elevated.
Powell warned that the Fed´s inflation fight would likely cause pain for Americans in the form of a weaker economy and job losses.
The Fed chair also said the job market is ‘clearly out of balance,’ with demand for workers ‘substantially exceeding’ the available supply.
Friday´s jobs figures and a report earlier this week that the number of job openings rose in July after three months of declines, suggested that the Fed´s rate hikes so far haven´t restored any such balance. There are roughly two advertised job openings for every unemployed worker.
The economic picture is highly uncertain, with the healthy pace of hiring and low unemployment at odds with the government´s estimate that the economy shrank in the first six months of this year, which is one informal definition of a recession.
Yet a related measure of the economy´s growth, which focuses on incomes, shows that it is still expanding, if at a weak pace.
So far, the Fed´s rate hikes have severely dented the housing market. With the average rate on a 30-year mortgage reaching 5.66% last week – double the level of a year ago – sales of existing homes have fallen for six straight months.
Consumers have moderated their spending in the face of much higher prices, though they spent more in July even after adjusting for inflation. But companies´ investment in new equipment has slowed, indicating they have an increasingly cautious outlook on the economy.