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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 affected investment, high-growth industries have returned to normal, and workers are staying in their jobs rather than pursuing higher wages.

According to the Labor Department’s report on Friday, employers added 187,000 jobs in August, with downward revisions to the previous two months’ figures. The three-month average now stands at 150,000, a significant slowdown compared to the consistent growth of 200,000 jobs per month over the previous 29 months. It is also slightly below the average pace of 163,000 in 2019.

The question now is whether this cooling trend will continue, leading to a more pronounced slowdown, as borrowing costs remain high and pressures on consumer spending increase.

Chris Chmura, chief executive of Chmura Economics & Analytics, believes that the labor market is slowly healing and returning to pre-pandemic levels. However, he also warns that broader economic trends cannot be ignored, and a recession next year is still a possibility.

The Federal Reserve has been looking for signs of a loosening labor market to help control price growth without causing a recession. The increase in the unemployment rate in August, from 3.5 percent to 3.8 percent, suggests that the labor market is indeed loosening. The labor force participation rate has also risen to 62.8 percent, just half a percentage point below its pre-pandemic high.

The slight increase in wages, with hourly earnings rising 4.3 percent from the previous year, further supports the notion of a cooling labor market. These figures have reinforced market expectations that the Federal Reserve will maintain its current interest rates, as it waits to assess the impact of previous increases.

While the recent hiring figures are subject to revision, the overall trend suggests that the labor market is stabilizing. This new normal is actually beneficial to workers, as stability encourages more people to join the workforce.

Industries that experienced significant growth during the pandemic, such as truck transportation, are now returning to more typical levels. This has led to a decline in job openings and a decrease in temporary help services as employers rely more on their regular employees. However, industries like leisure and hospitality, as well as private health care and education services, continue to show sustained demand and have accounted for the majority of job gains in recent months.

The construction industry has remained resilient despite challenges in home building and office construction. Public infrastructure funding and tax breaks for renewable energy installations and semiconductor plants are expected to drive demand and create new jobs in the near future. Similarly, the manufacturing industry may see a pickup in employment as construction spending increases.

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