In August 2023, the U.S. experienced a significant rise in its unemployment rate, indicating a slowdown in the job market as the summer drew to a close. According to the U.S. Bureau of Labor Statistics, nonfarm payrolls increased by 187,000 for the month, surpassing the Dow Jones estimate of 170,000. However, the unemployment rate surged to 3.8%, a substantial increase from July and the highest level since February 2022. Additionally, previous estimates for nonfarm payrolls in prior months were revised downward significantly. This uptick in the jobless rate coincided with an increase in the labor force participation rate to 62.8%, reaching its highest level since February 2020, just before the onset of the COVID-19 pandemic. The total labor force size expanded by 736,000. A broader measure of unemployment, including discouraged workers and those working part-time for economic reasons, rose to 7.1%, marking a 0.4 percentage point increase and the highest level since May 2022. Average hourly earnings grew by 0.2% for the month and 4.3% from the previous year, falling slightly below forecasts. This suggests a potential easing of inflationary pressures. The number of hours worked nudged higher to 34.4. While nonfarm payrolls continued to grow, previous counts for recent months were substantially revised downward. July’s estimate was lowered by 30,000 to 157,000, and June was revised downward by 80,000 to 105,000, marking the smallest monthly gain since December 2020.
This data indicates that the labor market may be nearing full employment, with supply and demand moving closer to equilibrium. Most of the job gains were concentrated in sectors that had been lagging, while the rest of the labor market is likely already at full employment. The unexpected rise in the jobless rate coincided with an increase in the number of unemployed individuals by 514,000. The number of employed individuals in households increased by 222,000, primarily driven by job gains in the private sector, which added 8,000 jobs compared to the government’s contribution of just 8,000. This employment report comes at a crucial time as Federal Reserve officials consider their monetary policy decisions. While it is widely expected that the Fed will refrain from raising rates at its September meeting, market pricing still suggests a 38% probability of a rate hike at the October meeting, according to CME Group data.