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In August, the US unemployment rate increased to 3.7%

Joe Biden

According to government data released on Friday, American employers reduced their hiring pace in August following the unexpected increase in the previous month, and the unemployment rate edged up. This could provide some comfort to the central bank that its efforts to fight inflation are bearing fruit.

The Federal Reserve is closely monitoring the development of the hot labor market and seeking for indications of softening as it attempts to cool the economy by sharply raising interest rates to curb inflation, which has risen to a 40-year high.

The unemployment rate increased as more workers entered the labor force, which is a welcome development that might allow the Fed to choose a smaller move later this month after two back-to-back super-sized rate increases. The data showed that wages continued to rise while the unemployment rate ticked up.

According to the Labor Department’s closely-watched monthly report, despite the decreasing pace, the job increases have raised employment above the level prior to the pandemic.

According to the study, the US economy added 315,000 jobs in August, which was in line with expectations after hiring 526,000 people in July.

According to the figures, the jobless rate increased once again to 3.7 percent from 3.5 percent in the previous month.

However, average hourly earnings increased by another 10 cents, or 0.3 percent, to $32.36 in August, indicating that wages are still rising. Worker salary has climbed by 5.2 percent in the last year.

The Fed is worried about continued upward pressure because it thinks it could result in a spiraling of wages and prices and raise inflation higher.

The Fed has raised the benchmark borrowing rate four times this year, including significant increases of 0.75 percentage points in June and July. The Fed’s actions were prompted by rising prices, which were made worse by high energy prices as a result of the Russian war in Ukraine, ongoing supply chain issues, and Covid-lockdowns in China.

Nevertheless, according to Rubeela Farooqi of High Frequency Economics, the most recent data “may tilt the scale towards a 50-basis point rate hike” at the meeting on September 20-21, while the upcoming report on consumer price inflation will also be important.

The Fed’s belief that policy must shift to a restrictive stance in the upcoming months, she added, “is not going to change as a result of these facts.”

There were more than 11 million available positions in July, or two for each job applicant.

A Little discomfort

Even though the US economy shrank in the first two quarters of 2022, which is typically considered a sign of a recession, the strong job market defies that classification.

Since there has been a labor shortage for months, businesses have had to provide higher pay, which has led to an increase in costs. Additionally, there are indications that businesses are “hoarding” personnel, keeping on to seasonal staff out of concern that they won’t be able to replace them later.

Even if monthly numbers indicate some signs of improvement, Fed policymakers have repeatedly stated that they will hike interest rates to slow the economy.

At a conference last week in Jackson Hole, Wyoming, Fed Chair Jerome Powell emphasized this point by forewarning of “some pain to consumers and companies” as well as a “softer job market.”

Private businesses reduced hiring in the month to 132,000, according to new figures released this week by payroll provider ADP.

Nela Richardson, chief economist of ADP, stated, “We think that these statistics imply a transition to a more modest pace of hiring.”

Every level of business is attempting to “understand what has evolved into a complex economic picture.”

However, according to ADP data, employees who left their positions in order to find new employment experienced pay increases of more than 16 percent, as opposed to gains of 7.6 percent for all employees during the previous year.

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