August Jobs Report Seen Showing Modest Bounce in a Slow Hiring Market

Key Takeaways

• Friday’s August employment report is expected to show a modest rebound in hiring after July’s surprising drop.
• Economists say seasonal hiring trends and federal immigration policy likely challenged job growth.
• With inflation running above the Fed’s 2% target, experts say the report is unlikely to change the odds of an interest rate increase later this month.

Economists expect the August jobs report to show the US labor market rebounded slightly after a surprising drop in hiring in July. Experts say the “low fire, low hire” environment of the past year likely persisted, and that it could take a big surprise to move the needle just weeks ahead of the next Federal Reserve meeting, where investors expect the first interest rate increase in over three years.

Forecasts for Friday’s report center on the US economy having added 65,000 jobs in August, which would mark a rebounding from a decline of 23,000 in July, according to FactSet. The unemployment rate is expected to tick up to 4.2% from 4.1% the prior month. A yearslong trend of soft summer hiring is expected to continue, while some economists point to immigration policies and healthcare hiring as key challenges to long-term jobs growth.

Overall, economists forecast that a contracting labor supply and muted hiring kept the job market sleepy last month. “The typical phrase is ‘low hire, low fire.’ I almost think it’s bordering on a ‘no fire, no hire’ market,” says Adam Schickling, senior economist at Vanguard. He says that while the relatively stagnant market is causing headaches for some workers—namely, new entrants and the unemployed—it’s at least stable. “At a high level, we still view the labor market as pretty resilient.”

August Jobs Report Forecast Highlights

• Job report release date and time: Friday, Sept. 4, at 8:30 a.m. EDT.
• Nonfarm payroll employment is forecast to increase by 65,000 in August vs. a decline of 23,000 in July, according to FactSet.
• The unemployment rate is forecast to rise to 4.2% from 4.1%.
• Average workweek is forecast to remain 34.3.
• Hourly earnings are forecast to increase 0.3% month over month vs. 0.1% in July.

August Hiring Rebound Expected

The report follows a big surprise last month. The United States shed 23,000 jobs in July, with declines of 50,000 jobs in the historically stable local government education category, 19,000 in retail trade, and 14,000 in the financial sector. Those losses couldn’t be offset by a below-average 22,000 increase in healthcare employment. Still, the exit of more than 250,000 workers from the labor force pushed the unemployment rate down to 4.1% from 4.2%.

Economists are split on whether labor force participation and unemployment rates are headed for a late-summer rebound. “The civilian labor force level is down by 1.3 million in the 12 months through July, and I think that trend will likely continue into the August jobs report,” says Bill Adams, chief US economist at Fifth Third Commercial Bank. Adams forecasts that the US shed about 25,000 jobs last month, which he attributes to immigration policy rather than labor demand. He believes the removal of temporary protected status for hundreds of thousands of Haitian immigrants in July constrained growth in the all-important healthcare and social assistance sectors.

On the other hand, Vanguard’s Schickling expects the unemployment rate rebounded to 4.3% last month, even as the country added an estimated 20,000 jobs. The shrinking labor force “has really been driven by a sharp decline in participation among the 25-to-34-year-old demographic,” he says. “We expect they will be coming back into the labor force and that will be putting some upward pressure on the unemployment rate.”

Summer Softness

Payrolls have exhibited “a clear pattern of residual seasonality” in recent years, according to Shruti Mishra, US economist at Bank of America Securities. She wrote that seasonality will cap the rebound from July’s large losses in government, leisure, and hospitality. In addition, August jobs reports “tend to surprise on the downside,” contributing to a below-consensus forecast of 40,000 new jobs.

Vanguard’s Schickling also expects to see seasonal trends on Friday morning. In the post-covid years, “we see spring strength, then summer softness, and then a fall stabilization.” Headline payroll numbers have gotten progressively worse since the economy added 214,000 jobs in March. “Our view is still that we’ll start to see job growth improve a bit throughout the fall, into the winter months,” he adds.

What It Could Mean for the Fed

The August jobs report comes as the Fed appears to be more focused on the inflation side of its dual mandate to maintain stable prices and promote maximum employment. “I believe the labor markets are consistent with full employment. But on the price-stability side of our mandate, the numbers are more concerning,” Chair Kevin Warsh said Friday in his speech at the annual economic symposium in Jackson Hole, Wyoming.

Days prior, the Fed’s preferred inflation measure, the Personal Consumption Expenditures Price Index, showed prices rose 3.7% year over year in July, well above its 2.0% target. The chances of a quarter-point hike later this month shot up following Warsh’s hawkish speech and now stand at nearly 70%, according to the CME FedWatch Tool.

Friday’s job data is unlikely to temper rate hike expectations, “unless the report is considerably weaker than our forecast,” says Bank of America’s Mishra. Warsh’s emphasis on unemployment claims, which remain historically low despite fears of AI-driven layoffs, is another reason experts predict policymakers may be comfortable looking through a moderately soft report.

“I would suspect the market would significantly reprice the probability of a September hike” if Friday’s numbers show a second consecutive month of job losses, says Vanguard’s Schickling. There could be a similar outcome if the unemployment rate jumps to 4.3%, as he predicts, or if average hourly earnings fall short of expectations. In each of those cases, “it’s just going to be increasingly difficult for the Fed to find the appetite to hike in September.”