The U.S. job market continued its recent monthly trend of slower growth, reflecting the economy’s modest expansion pace. August nonfarm payrolls grew by 187,000, slightly exceeding analyst expectations. However, the unemployment rate moved higher, from 3.5% in July to 3.8% in August, though it remains near 50-year lows.¹

The U.S. labor market is a key focus of the Federal Reserve (Fed) in its effort to combat persistent inflation. Fed officials have clarified that one objective for achieving lower inflation is tempering wage growth. A strong jobs market is more likely to push wages higher, which could contribute to higher inflation.

The job market’s resiliency, highlighted by consistently low unemployment and solid job growth, is considered one of the key drivers of a surprisingly steady economy. Some market analysts anticipated a recession in 2023. But led by solid consumer spending, fueled in part by the strong employment picture, modest economic growth continues.

What do recent trends tell us about the direction of the job market? How might the Fed react to these trends as it calibrates monetary policy to lower inflation? Does today’s job market provide any guidance for investors as they set expectations for the rest of the year?

Job growth – solid but slowing

Rapid job growth was a feature of the economy throughout 2021 and 2022. The U.S. Bureau of Labor Statistics reported that for all of 2022, non-farm payrolls grew by an average of 399,000 jobs per month. This represented a slower pace than 2021’s rapid job growth, which topped 605,000 per month.² In 2023, the pace of new job growth is even slower, though it continues to demonstrate stability.

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