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Unemployment Rate Edges To Highest in More Than a Year

The job market—which has been one of the economy’s bright spots—is dimming.

Key Takeaways

  • The unemployment rate rose to 3.8% in August, from 3.5% in July, which had been near a record low.
  • The uptick was caused not by layoffs, but by more people joining the workforce.
  • The cooling labor market could encourage officials at the Federal Reserve to refrain from raising interest rates again.

The unemployment rate edged up to 3.8% in August from 3.5% in July, rising from a near-record low to its highest since February 2022, the Bureau of Labor Statistics said Friday.

Employers added 187,000 jobs in August—more than the 170,000 that economists had expected, according to a poll by Dow Jones newswires and the Wall Street Journal. However, the bureau downgraded its estimates for June and July job growth by a total of 110,000, another indication that businesses are pulling back on hiring. 

The report adds to recent data showing the job market is rebalancing. There are more unemployed workers not because of layoffs, but because more people have started looking for jobs and haven’t found them. Some 736,000 people joined the labor force in August, the most since January, the BLS said.

More available workers means less competition for job candidates, and less pressure for employers to raise wages. And putting a lid on wage growth has been a key part of the Federal Reserve’s inflation-taming strategy.

The job slowdown could go some way toward convincing officials at the Fed that they’ve raised the central bank’s benchmark interest rate high enough, and can hold off on any more rate increases, economists said. The Fed has raised its rate 11 times since its campaign began, bringing it to a range of 5.25-5.50% from near zero.

“This report is a nearly ideal one for the Fed looking for broader macroeconomic conditions that are consistent with a further slowing in inflation but that also point to continued economic growth,” Jon Ryding and Conrad DeQuadros, economists at Brean Capital Markets, wrote in a commentary. 

The jobs report, together with data showing mild inflation pressures this week, have persuaded many traders that the Fed is done with interest rate hikes at least for the time being. The CME Group’s FedWatch tool, which forecasts Fed rate hikes based on fed funds futures trading data, showed a 61% chance of no more rate hikes through November, up from 44% a week ago.