PNC National Economic Outlook

The U.S. economy added 142,000 jobs in August, according to a survey of employers from the Bureau of Labor Statistics. Job growth in July was 89,000 after revisions; Hurricane Beryl likely weighed on employment in July. While the headline number was decent, there were large downward revisions to job growth in June and July of a combined 86,000. 

Over the past three months the U.S. has added 116,000 jobs on average, below the pace of 174,000 per month from March 2023 to March 2024 (taking into account recently announced revisions). The unemployment rate fell to 4.2% in August from 4.3% in July, but the difference was less impressive before rounding

After soaring to almost 15% in April 2020 with the pandemic, the unemployment rate dropped to a five-decades low of 3.4% in early 2023. But it has risen gradually since then, and the 4.3% rate in July was the highest since late 2021. Still, the unemployment rate remains low on an historical basis. 

The drop in the unemployment rate was even more positive given that the labor force—the number of adults working or looking for work—increased by 120,000 in August. Employment as measured in a survey of households (different from the survey of employers) increased by 168,000 in August. 

Average hourly earnings in August were up 3.8% from a year earlier; this was a slight acceleration from 3.6% growth in July, but was down from a peak of almost 6% in early 2023. Inflation was very slow in August. Both the personal consumption expenditures price index and the core PCE price index, excluding volatile food and energy prices, increased 0.1% in August from July. 

On a year-ago basis the overall PCE inflation rate was 2.2% in August, down from 2.5% in July and a peak of above 7% in mid-2022. Inflation measured using the core PCE price index—the Federal Reserve’s preferred inflation measure—was 2.7% in August. While this was up slightly from 2.6% in June and July, and above the Fed’s 2% objective, it is down from a peak of 5.6% two years ago. Inflation should continue to ease in the near term given slower growth in wages and housing costs.

The Federal Reserve has a dual mandate of maximum employment and price stability. With inflation easing toward the Fed’s 2% objective and job growth slowing in recent months, the Federal Open Market Committee cut the federal funds rate by 50 basis points on September 18, to a range of 4.75% to 5.00%. The fed funds rate is the rate on overnight loans between banks and is the Federal Reserve’s key monetary policy rate. 

When the FOMC wants to promote economic growth it cuts the rate, and when it wants to slow economic growth and reduce inflation it raises the rate. The FOMC slashed the rate to a range between 0.00% and 0.25% early in the pandemic and kept it there until March 2022, when it started to raise the rate aggressively through July 2023 in an effort to cool off economic growth and bring down inflation. 

As inflation slowed it kept the rate in a range between 5.25% and 5.50% until the cut on September 18. PNC’s September forecast, prepared before the FOMC meeting, expected a 25-basis point rate cut. The FOMC’s Summary of Economic Projections, or “dot plot,” also released on September 18, points to additional cuts to the fed funds rate later this year and in 2025.