A cooler job market is just what we need

Employers are hiring at a slower but still healthy pace, more evidence that a recession isn’t inevitable in the fight against inflation

A sign of the times.Gabriela Bhaskar/Bloomberg

The tight-as-a-drum labor market is loosening up as sharply higher interest rates weigh on the economy.

Yes, hiring picked up last month, the Labor Department said on Friday, even after the Hollywood strikes and the shutdown of a big trucking company put about 46,000 people out of work.

But the Labor Department also revised lower the previously reported hiring gains for June and July by 110,000 jobs. (Such tweaks are routine). Looking at the past three months, the average increase has been 150,000 jobs, well off the pace of earlier in the year.

Employers are pulling back from a hiring spree that began after COVID shutdowns turned the job market inside out. That pace — an average of nearly 470,000 jobs a month from the start of 2021 through the end of 2022 — was unsustainable and, some economists argue, inflationary.

Job growth is now lower but roughly comparable with 2019, which was considered a pretty ideal time. Unemployment was near a 50-year low and inflation wasn’t a problem.

The labor shortage is easing, too. Almost 600,000 new workers jumped into the labor force last month to search for a job, the most since October 2019. Until they land a job, they join the ranks of the unemployed, which is why the jobless rate rose to 3.8 percent last month from 3.5 percent in July.

Evidence is mounting that the Federal Reserve may be able to pull off an improbable feat: taming inflation without causing a painful recession.

“The August jobs report couldn’t be much better,” Mark Zandi, chief economist at Moody’s Analytics, said on the social media site formerly known as Twitter. “Job growth is solid but slowing. Unemployment rose, but for that right reason — more labor supply as participation jumped. . .The report has soft landing written all over it.”

The Standard & Poor’s 500 index ended Friday little changed, as did the yield on two-year Treasuries, which reflects expectations for Fed rate actions.

The economy expanded at a 2.1 percent annual rate in the second quarter, and private economists expect third-quarter growth to be about the same. The Federal Reserve’s preferred measure of inflation, called the personal consumption expenditures price index, rose 4.2 percent for over the 12 months through July, excluding volatile food and energy costs. That was a tick higher than the rate in June but was down from 5.4 percent in February 2022, the crest of this inflation wave.

A gradually cooling jobs market takes pressure off the Fed to boost rates. Policy makers can afford to see how things play out when they meet again on Sept. 19-20.

“This mixed report will likely give the Fed enough comfort to pause rate increases at its meeting later this month,” said Eric Merlis, managing director and co-head of global markets at Citizens Bank.

A breather from rising rates would be welcome.