WASHINGTON– With rising interest rates, high inflation and sluggish consumer spending all weighing on the economy’s outlook, US employers cut hiring in August.
The government reported on Friday that the economy added 315,000 jobs last month, up from 526,000 in July and below the average gain for the previous three months. The unemployment rate rose to 3.7% from a half-century low of 3.5% in July as more Americans came off the sidelines to look for jobs and didn’t find jobs immediately.
The lower August earnings are likely to be welcomed by the Federal Reserve. The Fed is raising interest rates rapidly to try to dampen persistently strong hiring and wage growth. Businesses typically pass on the cost of higher wages to their customers through higher prices, fueling inflation.
Fed officials are hoping that by raising the cost of borrowing across the economy, they can bring inflation down from a near 40-year high. However, some economists fear the Fed will tighten credit so aggressively that it will eventually plunge the economy into recession.
Job openings remain high and the pace of layoffs low, suggesting that most companies are still looking to hire and that the economy is unlikely to be in, or even close to, a recession. The broadest measure of economic output — gross domestic product — has contracted for two straight quarters, fitting an informal definition of a recession.
However, most economists assume that a recession will not set in until the unemployment rate has risen steadily. Still, worries of an imminent recession have grown after Fed Chair Jerome Powell made it clear in a high-profile speech last week that, in order to curb inflation, the Fed stands ready to raise short-term interest rates for the foreseeable future and keep them in the future elevated. Powell warned that the Fed’s inflationary war was likely to hurt Americans in the form of a weaker economy and job losses.
The Fed Chair also said the labor market is “clearly out of whack” as labor demand “substantially outstrips available supply.” Friday’s payrolls numbers and a report earlier this week that job openings rose in July after three months of decline suggest the Fed’s rate hikes have so far failed to restore such a balance. There are about two job advertisements for every unemployed person.
The central bank raised its short-term interest rate to a range of 2.25% to 2.5% this year, after the fastest string of hikes since it began using its short-term interest rate to influence the economy in the early 1990s. It forecasts its key interest rate to reach a range of 3.25% to 3.5% by the end of the year. These rate hikes have steadily made borrowing and spending more expensive for individuals and businesses. The housing market in particular was weakened by higher interest rates on loans.
The jobs numbers are helping to fill in the economic backdrop as congressional elections intensify this fall. Republicans have pointed to high inflation to try to thrash Democrats in midterm campaigns. The Biden administration has pushed back, claiming credit for a robust pace of job growth.
Wages are rising at the fastest pace in decades as employers scramble to fill vacancies while fewer Americans are working or looking for jobs in the wake of the pandemic. Average hourly earnings rose 5.2% year-on-year in July. But that was down from the 5.6% year-on-year in March, which was the largest annual increase in 15 years of records outside of spring 2020, when the pandemic hit.
Some skeptics warn that the Fed may be overly focused on job market strength when other indicators suggest the economy is weakening noticeably. For example, consumer spending and manufacturing have slowed. As a result, the central bank could hike rates too far, to the point where it creates a deeper recession than is needed to fight inflation.
The economic picture is extremely uncertain as the healthy pace of hiring and low unemployment conflict with the government’s estimate that the economy contracted in the first six months of this year, which is an informal definition of a recession.
However, a related measure of economic growth that focuses on income shows that it is still expanding, albeit at a weak pace.
So far, the Fed’s rate hikes have hit the housing market hard. As the average interest rate on a 30-year mortgage hit 5.66% last week – double the level a year ago – existing home sales have declined for six straight months.
Consumers have reined in spending in the face of much higher prices, although they actually spent more in July adjusted for inflation. However, corporate investments in new equipment have slowed, suggesting they have an increasingly cautious outlook on the economy.
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https://6abc.com/jobs-available-unemployment-benefits-quiet-quitting-help-wanted/12189543/ America’s employers slowed their hiring in August in the face of rising interest rates