Job growth rebounds in August, opening door for Fed to act on inflation

The United States added 162,000 jobs in August, more than double what a consensus of economists had expected, bolstering confidence that the economy remains on solid footing. The strong employment report gives added support to the Federal Reserve’s view that it can focus on fighting inflation without having to worry too much about economic growth.Reducing inflation is likely to involve raising short-term interest rates. The Fed could act as early as later this month when its rate-setting committee meets, perhaps boosting rates by 25 basis points, or 0.25%. “We now see two, 25bps rate hikes by year-end,” wrote Kathy Bostjancic, Nationwide’s chief economist, in a note Friday after the release of the Labor Department’s employment report.However, some economists are skeptical that the move will happen so soon unless inflation data released later this month suggests price increases are accelerating. “The August employment report was stronger than expected, but not enough to cause us to change our call for the Federal Reserve to remain on hold,” Nancy Vanden Houten, lead U.S. economist for Oxford Economics, wrote in a note to investors. Why We Wrote This The U.S. economy’s 162,000 jobs far outpaced expectations for August. The Labor Department also revised upward its June and July figures. But in the information sector, job declines might signal effects of artificial intelligence. Reducing inflation would be a boon to workers. While average hourly earnings for all employees on private nonfarm payrolls rose a healthy 10 cents in August – after a minuscule rise in July – workers on balance are still seeing prices rise faster than their annual pay.Restaurants and bars saw a big increase of 59,000 jobs, nearly five times the average gain of the previous 12 months, according to the employment report. Manufacturing also saw a growth of 16,000 jobs in August, continuing a trend that totals 58,000 since lows reached this past December. Healthcare also grew, but at a slower pace than in previous months.The Labor Department also revised upward its earlier estimates for June and July, adding another 55,000 jobs.The big loser was the information sector, where an average decline of 8,000 per month over the past year ballooned to 23,000 in August.Employment fell by 8,000 in computing infrastructure providers, data processing, web hosting, and related services. Publishing industries lost 7,000 jobs, and broadcasting and content providers shed 5,000 jobs over the month. Some economists point to the inroads of artificial intelligence in those industries as a possible cause for the accelerated losses.Another concern: The share of prime-age men (25 to 54) who are working continues to fall. It is down 0.7 percentage points from a year ago, according to Dean Baker, senior economist for the Center for Economic and Policy Research.But overall, “the job market continues to defy fears of an AI-related job apocalypse,” Brian Wesbury and Robert Stein, economists at First Trust, wrote in a note on Friday. “Big picture, it looks like the US labor market has strengthened so far this year.”