The U.S. labor market added 187,000 jobs in August, but that was not the most important stat in the latest jobs report. Job gains this year have been much more robust than anticipated, but it turns out not as many jobs were added in early-to-mid summer as originally reported.
Revisions Bring Labor Market in Line With Reality
Based on new estimates, the labor market added only 105,000 jobs in June, a significant reduction from the original report of 209,000 jobs. July’s job gains were revised lower from 187,000 to 157,000 in this month’s report. So, what does that mean?
First, it’s not all that surprising. Throughout early summer, it felt like things had stalled or even moved backward even though labor market reports were very positive. From conversations with executives across the country to business performance and earnings reports, the overall economic landscape felt a bit more pessimistic than the data implied.
I’ve written about how initial unemployment insurance claims are a good weekly measure to follow because they are a proxy for layoffs. That number spiked in June, indicating the number of layoffs increased, which means a lot more companies would need to be in hiring mode to offset the losses. As it turns out, that didn’t actually happen, and job gains were much less robust than original reports suggested.
Since June, initial unemployment insurance claims have generally trended lower, signaling layoffs have moderated. That lines up with the new narrative that job gains were slower in June and have improved since then. Let’s hope the story stays that way.
Overall, the labor market is still strong. Heading into 2023, LaborIQ forecasted approximately 100,000 jobs would be added per month. After a much better-than-expected first half of the year, it appears the job market is stabilizing closer to that figure.
Unemployment Inches Up
The unemployment rate increased to 3.8% in August after being as low as 3.4% earlier in the year. By historical measures, the latest rate still represents a very tight labor market, but the recent uptick is worth watching.
There is a recession indicator called the Sahm Rule, which indicates that a recession begins when the average unemployment rate over the past three months is 0.5 percentage points above the lowest reading in the past 12 months of 3.4%. And with August’s unemployment rate at 3.8%, we aren’t too far away from that being the case.
The unemployment rate increase had some good news related to it. The labor force — the total number of people who are employed or unemployed and actively looking for work — grew by 736,000 people in August, almost as much as the previous five months combined. An increase in the unemployment rate because of a growing labor force — rather than an increase in layoffs — can signal that people are confident in their ability to get a job.
Tech Starts to Rebound
The last 12 months have been marked by well-known tech firms announcing layoffs. We could be at the beginning of some of those firms announcing expansion plans. Last week, Salesforce announced it is hiring 3,300 workers, primarily in engineering and sales roles.
While tech is looking to rebound, the hottest industry for job creation has been healthcare and social services. It topped all industries with 97,000 jobs added in August, and it has added the most jobs in each month since February. Within that industry, ambulatory health care services added 40,000 jobs in August. That subsector is an aggregate of outpatient care facilities, ranging from physicians to chiropractors.
Not only is the healthcare industry hot for hiring right now, a recently released forecast from the U.S. Bureau of Labor Statistics predicted that almost half of the new jobs created in the next decade will be in health care. With our aging population, almost 1 in 6 jobs created from now to 2032 will be home health aides, and it will become the largest occupation in the country.
On the flip side, there are some rough spots in the labor market. Industries related to housing are still struggling. The writers strike is impacting the entertainment industry, and the auto workers strike is just getting underway. These strikes are likely to impact jobs reports for the next several months, so keep that in mind if you see some more pessimistic headlines.
Outlook for 2024
As we approach the last quarter of the calendar year, outlooks for 2024 will start to emerge. My best guess is that we’ll have positive but slower job growth next year. The two biggest limitations to growth are the low unemployment rate and slow pace of growth in the labor force.
Because of those factors, wage growth will still likely be above long-term averages. For anybody who is getting ready to go through headcount budget planning, we are estimating wages will rise 3.5% next year.