America’s employers slowed their hiring in August in the face of rising interest rates!

Washington – US employers slowed hiring in August in the face of rising interest rates, high inflation and slowing consumer spending, all of which dampened the outlook for the economy.

The government reported Friday that the economy added 315,000 jobs last month, down from 526,000 in July and below the average gain of the previous three months. The unemployment rate rose to 3.7%, from a half-century low of 3.5% in July, as more Americans moved away from the sidelines to look for jobs and did not immediately find work.

The Fed is likely to welcome August’s smaller gains. The Fed is rapidly raising interest rates in an effort to cool employment and wage growth, which have been consistently strong. Companies usually pass on the higher wage cost to their customers through higher prices, which leads to higher inflation.

Federal Reserve officials hope that by increasing borrowing costs across the economy, they can lower inflation from its highest level in 40 years. However, some economists fear that the Fed is tightening credit so hard that it will eventually push the economy into a recession.

Job opportunities remain high and the pace of layoffs low, indicating that most companies still want to hire and that the economy is unlikely to be in a recession or even close to it. The broader measure of the economy’s output – gross domestic product – has shrunk for two consecutive quarters, meeting one unofficial definition of recession.

However, most economists do not believe that a recession will begin until the unemployment rate rises steadily. However, concerns about an impending recession intensified after Fed Chairman Jerome Powell, in a high-profile speech last week, made it clear that in order to curb inflation, the Fed was willing to continue raising short-term interest rates for the foreseeable future and keep them high. Powell warned that the Fed’s inflation battle is likely to cause pain to Americans in the form of a weaker economy and job losses.

The Fed chair also said the labor market is “clearly unbalanced,” with demand for workers “dramatically outstripping” the available supply. Friday’s job numbers and an earlier report this week of July job vacancies surged after three months of declines, suggest that the Fed’s rate hike so far has not restored any such equilibrium. There are approximately two job postings for every unemployed worker.

The central bank raised its short-term rate to a range of 2.25% to 2.5% this year, after the fastest series of increases since it began using its short-term rate to influence the economy in the early 1990s. It forecast the key rate to reach a range of 3.25% to 3.5% by the end of the year. These increases in interest rates have made borrowing and spending steadily more expensive for individuals and businesses. The housing market, in particular, has been weakened by high loan rates.

The job numbers help fill in the economic backdrop as the fall congressional elections heat up. Republicans have pointed to rising inflation in an attempt to hit Democrats in midterm campaigns. The Biden administration has been pushed back and credited with a solid pace of job growth.

Wages are rising at their fastest pace in decades as employers scramble to fill jobs at a time when fewer Americans are working or looking for work in the wake of the pandemic. Average hourly earnings jumped 5.2% in July of the previous year. However, that was down from 5.6% year on year in March, which was the largest annual increase in 15 years of records outside of spring 2020, when the pandemic hit.

Some skeptics warn that the Fed may focus excessively on the strength of the labor market when other indicators indicate that the economy is weakening significantly. Consumer spending, for example, and manufacturing slowed. As a result, the central bank may raise interest rates more than it should, to the point of causing a deeper recession than would be necessary to conquer inflation.

The economic picture is highly uncertain, with the healthy pace of employment and low unemployment at odds with government estimates that the economy contracted in the first six months of this year, one of the unofficial definitions of a recession.

However, a relevant measure of the economy’s growth, which focuses on income, shows that it is still expanding, if at a weak pace.

So far, the interest rate hike by the Federal Reserve has severely affected the housing market. With the 30-year average mortgage rate coming in at 5.66% last week – double last year’s level – existing home sales have fallen for six straight months.

Consumers adjusted their spending in the face of higher prices, although they spent more in July even after adjusting to inflation. But companies’ investment in new equipment has slowed, indicating they have an increasingly cautious view of the economy.