Hiring increased in August, but the labor market cooldown continues

Nothing is ever as simple as it seems—especially the jobs report.

Hiring ticked up in August—though it was lower than analysts’ expectations—and the unemployment rate fell slightly according to the most recent jobs report from the Bureau of Labor Statistics. Despite not being as dour as last month’s stock market panic-inducing employment data, the report still points to an overall cooldown in the labor market, suggesting the Federal Reserve will cut rates later this month, which could have implications for employers.

Let’s take a closer look.

What the data says. US employers added 142,000 jobs in August, while the unemployment rate fell slightly to 4.2% from 4.3% in July.

Leisure and hospitality saw the highest increase in gains for private employers, adding 46,000 jobs in August, compared to 24,000 in July. Construction followed, adding 34,000 more last month compared to 13,000 in July. Meanwhile, manufacturing lost 24,000 jobs in August, a 30,000 drop from the 6,000 roles added in July, marking the largest decline of all industries.

One worrying standout of the latest report, though, is the revision for July and June employment data. Employers added 89,000 jobs in July, a significant drop from the 114,000 initially reported. Similarly, only 118,000 jobs were added in June, well below the 179,000 originally reported. These corrections show the labor market cooldown is steeper than originally thought.

“There are so many things about this report that are good, but the trend is what we’re most concerned about. We did see some revisions for the last couple of months that were pretty significant,” Elizabeth Crofoot, a senior economist at labor market analytics firm Lightcast, told HR Brew. “That goes to the overall trend of: Employment growth is slowing, it’s moderating significantly.”

Zoom out. While the labor market remains strong and layoffs remain low, employers have been adjusting to economic challenges in other ways, including slowing hiring and cutting back on hours. But employers might be reaching the limits of their options to cut down on costs without culling workers, Crofoot said: Job openings in July fell to the lowest level seen since early 2021, according to the most recent JOLTS report, and average weekly hours for workers has continuously fallen since April 2021, now at 34.3 hours per week in August, on par with pre-pandemic averages. While the Fed is expected to cut interest rates later this month, without that relief, employers will likely have to resort to cutting workers.

But even with rate cuts, which would make it easier for businesses to invest and grow, there are still recruiting challenges ahead: Labor shortages are expected to only get worse as more people retire than enter the workforce. Companies will have to think creatively about how they attract job seekers, and also train their current workforce to fulfill the skills they need.

Kathy George, president of staffing and recruiting firm Spherion, told HR Brew she’s currently working with clients to focus not only on requisitioning workers, but also investing in talent so that they stay. She said the bulk of her clients are in manufacturing, and she’s had to help them make jobs alluring for Gen Z workers, who don’t typically gravitate toward the industry. Job seekers in particular are looking for long-term career development, as well as creative and competitive benefits, she added.

“Your parents might have been much more attracted to manufacturing and logistics jobs, but younger workers today, if they do take something like that, are they expected to stay in, [or] is it a stepping stone?” George said. “How do you make the different types of jobs interesting and attractive, and really remove some perceptions about the roles that people may have? Because they’re not always getting exposure to those jobs.”