Unemployment inched up in August: will the trend continue?

For the first time since the pandemic drove unemployment to new highs, the rate of those without work increased by 0.2 percent from 3.5 to 3.7 percent in August.

Earlier this summer, the Federal Reserve began to increase interest rates to slow the movement of money throughout the economy. When bumping up interest rates around 1.5 percent, the central bank projected that unemployment would rise to 3.7 percent by the end of 2022. Interest rates, traditionally, have an impact on unemployment - as rates increase, so does unemployment.

With a few months remaining in the year, it is unclear whether unemployment will continue to increase or cap out at its current level. The Fed’s dramatic rate hikes were primarily done to reign in inflation, but even Chairman Jerome Powell is unsure whether or not this will bring down prices without causing a recession.

Chairman Powell testified before the Senate Banking, Housing, and Urban Affairs Committee on 22 June and was questioned by Senator Elizabeth Warren (D-MA) about the impact of the rate increase on the price of goods consumed by most households.

“Will gas prices go down as a result of your interest rate increase?” probed the Senator.

“I would not think so, no,” responded Chairman Powell.

Sen. Warren noted that gas prices are one of the largest contributors to inflation since the costs of transporting goods are reflected in the market price experienced by consumers as they shop. If rate hikes will not bring down the price of gasoline or other energy commodities, bringing down inflation overall will be pretty challenging.

The Fed looks at an inflation index that does not take food and energy prices into account. This indicator is known as “personal consumption expenditures (PCE),” and the central bank expects this figure to clock in at around 5.2 percent by the end of this year. Since January, the Bureau of Labor Statistics has tracked a 5.9 increase for the PCE. For the 5.2 number to be reached, prices in the market must come down quickly between September and December.

What sectors saw increases in unemployment?

Sectors that saw the most significant decreases in unemployment included educational professionals at the state (-4.5 percent) and local (14 percent) levels. In the ‘professional and business services’ industry, those in legal services left or were laid off at higher rates than they were hired, losing almost nine percent of those employed.

Warehousing and storage, including those who work at Amazon, saw around 6.2 percent of those working in the sector.