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Hiring in the U.S. Slows Down

The United States labor market is starting to resemble its pre-pandemic state. The Federal Reserve’s interest rate hikes have dampened investment, industries that were once thriving have cooled down, and workers are opting to stay in their current jobs instead of chasing higher salaries.

According to the Labor Department, employers added 187,000 jobs in August, but the figures for the previous two months were revised downward. This brings the three-month average to 150,000, a significant decline from the previous 29 months where the average was 200,000 jobs added. It is also slightly lower than the average pace of 163,000 in 2019.

The question now is whether this cooling trend will continue and potentially lead to a freeze in hiring. High borrowing costs and mounting pressure on consumer spending may contribute to this scenario.

Chris Chmura, CEO of Chmura Economics & Analytics, believes that the labor market is finally healing and returning to pre-pandemic levels. However, he also acknowledges the possibility of a recession next year when looking at the broader trends in the economy.

The Federal Reserve has been cautious in raising interest rates, aiming to control price growth without causing a severe recession. Their focus is on ensuring that the labor market is loosening enough to mitigate the risk of excessive demand driving inflation.

One indicator of a loosening labor market is the increase in the unemployment rate, which rose from 3.5 percent to 3.8 percent in August. This increase is attributed to 736,000 more people entering or searching for employment, raising the overall labor force participation rate to 62.8 percent, just half a percentage point away from its pre-pandemic peak.

Wage growth also supports the idea of a balancing labor market, with hourly earnings increasing by 4.3 percent compared to the previous year. This growth rate is similar to the pace seen since the spring. The August report suggests that the Federal Reserve will keep interest rates steady at their next meeting in mid-September, as they assess the impact of the previous rate increases.

It’s important to note that the recent hiring figures are subject to further revision, as the Bureau of Labor Statistics plans to conduct its annual benchmarking process. However, the overall trend indicates that the labor market is stabilizing, albeit not as strong as during the peak of the pandemic recovery.

Justin Bloesch, an assistant professor of economics at Cornell University, believes that the current labor market, while not as strong as before, still benefits workers more than in the past 25 years. Stability in the job market encourages more people to join and remain employed.

Kevin Vaughan, owner of six bars and restaurants in Chicago, has observed a shift in focus towards cost and the need to make money among his employees. As hiring frenzies subside, employment growth is now concentrated in industries that are still recovering, such as leisure and hospitality, as well as sectors with sustained demand like private healthcare and education services. These industries have accounted for 85 percent of job gains in the past three months, and they are also heavily supported by immigrants and women.

The slowdown in hiring can be attributed to industries returning to more typical levels after the pandemic’s disruption. For example, the truck transportation industry experienced significant growth during the stay-at-home online shopping boom but has now plateaued. Additionally, other sectors of the labor market are also finding balance, such as temporary help services, where job losses indicate a reduced need for short-term labor.

The job market is also influenced by broader economic factors. The average number of hours worked per week has decreased as payrolls have stabilized, and demand for extra short-term labor has diminished. However, some industries like construction may see a resurgence due to public infrastructure funding and investments in renewable energy and semiconductor plants.

Ed Sullivan, chief economist for the Portland Cement Association, predicts a turnaround in construction next year due to federal spending on infrastructure. This could lead to increased manufacturing employment as well.

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