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US unemployment rate spikes dramatically as Biden sees one of the worst jobs reports of his presidency

 September 2, 2023

The United States economy observed moderate job growth in August, but there was a surprising surge in the unemployment rate, hinting at possible shifts in the labor market landscape.

The Labor Department, in a recent report, confirmed that 187,000 jobs were added during the relevant time frame, surpassing the prediction of 170,000 jobs by Refinitiv economists, as Fox Business reported.

However, another household-based survey unveiled an intriguing dimension to that finding. The unemployment rate saw an increase, moving from 3.5% to 3.8%.

Notably, this is the country's largest upward movement since February 2022, reminiscent of the drastic fluctuations during the initial phase of the COVID-19 outbreak.

Revised Numbers Indicate Weaker Summer Growth

Previous estimates for job growth during June and July were overly optimistic. Recent adjustments show a significant cutback of 110,000 jobs, bringing the numbers down to 105,000 for June and 157,000 for July.

As Ben Ayers, a senior economist at Nationwide, points out, while there are still plenty of job opportunities, and wage growth continues, these adjustments and the higher unemployment rate somewhat dim the previously optimistic labor outlook.

The current state of average hourly earnings is a critical inflation metric. This measure saw a 0.2% growth for August, which is 4.3% more than last year's figure during the same period. Although these numbers fell short of projections, they're still considered favorable news for the Federal Reserve.

Central Bank's Response to the Evolving Labor Market

The Federal Reserve, after effecting consistent interest rate hikes over the past year, is particularly interested in these figures, seeking signs of a softening labor market.

This deceleration in job growth, paired with rising unemployment and wage growth stabilization, could influence the Fed to reconsider its rate increase strategy for the coming months.

Following the release of the latest job data, predictions for a rate hike in September plummeted, according to the CME Group's FedWatch Tool.  Anticipations for a November hike have also been recalibrated, with only 36.5% forecasting an increase.

Chris Zaccarelli of the Independent Advisor Alliance perceives this report as positive news in the Federal Reserve's battle against inflation. According to Zaccarelli, a slight dip in wages and a rise in unemployment suggests a tempering of wage demands and a previously overheated job market.

Sector-Based Insights: Growth and Decline

In terms of the impact on specific industry sectors, August witnessed diverse trends. Significant job increases were seen in health care (71,000), followed by leisure and hospitality (40,000), social assistance (26,000), and construction (22,000).

On the flip side, certain other sectors felt the heat. Transportation and warehousing ranks dropped by 34,000 jobs, primarily due to trucking behemoth Yellow declaring bankruptcy.

Information sector positions decreased by 15,000. Also, the ongoing strikes involving actors and writers severely impacted the entertainment sector, leading to a halt in many Hollywood-based ventures.

While the labor market has largely defied slowdown expectations recently, a subtle shift may well underway. Another report by the Labor Department reveals that job vacancies fell to 8.8 million by July's end.

Despite hitting its lowest point since March 2021, the ratio of available jobs to unemployed individuals remains notably high compared to pre-pandemic times.

Sean Snaith, an economist from the University of Central Florida, observed, "The reality is there's some softening, but it's not terribly substantial."