The United States labor market is resembling its pre-pandemic state with the Federal Reserve’s interest rate increases impacting investment, industries experiencing a decline in growth, and workers choosing to stay in their current jobs instead of seeking higher paying alternatives. The Labor Department reported that employers added 187,000 jobs in August, bringing the three-month average to 150,000. This indicates a slowdown compared to the consistent growth of 200,000 jobs for 29 consecutive months prior and a slightly lower average compared to 2019. The concern now is whether this cooling trend will continue and potentially lead to a recession next year due to high borrowing costs and mounting pressures on consumer spending.
The Federal Reserve has been aiming to control price growth without causing a recession by monitoring the labor market, as excessive demand for goods and services could potentially reignite inflation troubles. The increase in the unemployment rate to 3.8% in August from 3.5% provides some evidence that the labor market is loosening. Furthermore, the slight increase in wages, with hourly earnings rising 4.3% from a year earlier, contributes to the picture of a stabilizing labor market. These factors reinforce market expectations that the Federal Reserve will maintain steady interest rates at its upcoming meeting in mid-September to assess the impact of the past year and a half’s five-percentage-point increase.
Although the recent hiring figures are subject to revision, the overall trajectory suggests that while the labor market is not as hot as it was during the peak of the pandemic recovery, it is stabilizing in a better form than before 2020. This normalization of the labor market offers advantages for workers, as stability encourages more people to enter the workforce with confidence in their ability to secure and maintain employment. Industries such as truck transportation, which experienced a surge during the pandemic but have since returned to typical levels, have contributed to the overall slowdown. Other industries are also reaching a balance, with fewer job openings per unemployed worker and a reduction in temporary help services jobs as employers rely more on regular employees. While uncertainty remains, some sectors, like leisure and hospitality, health care, and education services, continue to experience sustained growth due to factors specific to the economy.
Looking ahead, there may be renewed energy in the goods-producing side of the economy, particularly in construction. Despite challenges in segments like home building and office construction, federal infrastructure funding and tax incentives for renewable energy installations and semiconductor plants are expected to create more demand. Cement demand, a leading indicator for construction jobs, is projected to decline this year but is anticipated to bounce back next year with federal spending on infrastructure. Additionally, with construction spending focused on new factories, manufacturing employment may experience an upturn after a flat year in 2023.