The job market rebounds

If you feel like you’ve spent the past few months firing resumes into the void, today’s jobs report may have brought some encouraging news:

• Employers added 162,000 jobs in August, nearly triple the roughly 53,000 that economists expected.
• The unemployment rate held at 4.1%, a level economists generally consider healthy.
• The labor force participation rate rose to 61.6%, up from 61.4% in July and the first improvement in almost a year.
• Previous months were revised upward as well: July went from an initially reported loss of 23,000 jobs to a gain of 21,000.

A big chunk of those new jobs came from restaurants and bars, which added 59,000 workers, followed by local government education, which added another 42,000. Construction, manufacturing, and health care also added workers, while the information sector shed jobs.

Underneath the numbers

That’s a pretty convincing comeback for a labor market that looked shaky just a month ago. So why doesn’t it feel that way for a lot of Americans?

Part of the answer comes down to the age-old question of quantity versus quality. The headline jobs numbers are very good at telling us how many people are working, but not so great at telling us whether those workers are earning enough money to afford their lifestyles.

Wage growth offers a clue about why Americans are still finding it difficult to get by: Average hourly earnings rose 3.1% from a year ago in August, the slowest pace since 2021. Meanwhile, the latest available inflation reading showed consumer prices rising 3.4% annually in July.

A broader measure from the Ludwig Institute for Shared Economic Prosperity highlights another weakness hidden by the headline unemployment rate: Ludwig’s “True Rate of Unemployment” also counts people involuntarily stuck in part-time work or earning less than $26,000 a year. By that measure, 24.9% of workers were “functionally unemployed” in July, the fourth straight monthly increase.

To be clear, that figure isn’t directly comparable with the official unemployment rate because it uses a much broader definition, but it still helps paint a pretty gloomy picture.

Warsh watch

For the Fed, today’s job report strengthens the case for higher rates.

With unemployment low and hiring stronger than expected, policymakers have more room to focus on inflation—which, as Kevin Warsh stressed at Jackson Hole, remains above the Fed’s 2% target. That’s why markets pushed the odds of a September rate hike to 58.4%, up from around 50% before the jobs report, according to the CME Fedwatch tool.

President Trump, however, wants the US to have “the LOWEST RATE of any country in the World,” Trump wrote in a Truth Social post today. “LOWER THE RATE OR I’LL STOP TRADING WITH COUNTRIES WITH WHICH WE HAVE A DEFICIT.”

Markets will be watching the August CPI data that arrives next week, giving the Fed one last major read on inflation before its September meeting.—SY