Pace of hiring slowed in August but the job market is still strong

(CNN) - The economy added 315,000 jobs in August, exceeding economists' expectations but far below July's blowout report, when employment surged by a revised 526,000 positions.

The nation's unemployment rate rose to 3.7% from 3.5%, and the labor force participation rate ticked up 0.3 percentage points to 62.4%.

The August jobs report is among the key economic data the Federal Reserve will review when it meets later this month to decide how much to ratchet up its benchmark interest rate in order to stifle stubbornly high inflation.

The Fed has been battling the highest inflation in 40 years by implementing punishingly high rate hikes.

While the economy is slowing and certain industries such as housing are showing softening amid a series of hefty rate hikes, the labor market has remained strong — a little too strong for the Fed's liking.

Fed chairman Jerome Powell said last week the labor market is "clearly out of balance, with demand for workers substantially exceeding the supply of available workers."

Earlier this week, the ratio of available jobs to job seekers popped back up to just shy of 2:1, as the number of job openings hit 11.2 million in July, an increase of 700,000 from June, according to the Bureau of Labor Statistics.

The average monthly job gains are robust, compared to pre-pandemic times when the monthly average was around 200,000, BLS data shows.

But even the slower pace of August's increase would be considered acceptable to the Fed, said Brian Bethune, an economics professor at Boston College.

"I don't think the Fed wants to see things suddenly decelerate, nor do they want to see things move at too rapid of a rate for the economy to adjust," he said. "What the Fed wants is the Goldilocks economy. They want it to be moving along at a steady pace — but not too fast; not too hot, not too cold."

The strong labor market and job gains shouldn't be viewed as a net negative, Bethune said, noting that adding workers helps to ease supply-side constraints in goods and services.

"If the Fed goes and drives through the stop sign, and we get a reduction in employment as a result, then we're going to get a reduction in supply — really not the right path to go at all," he said.

This is the second jobs report released since the end of July, when the Fed's rate hike committee last met. Powell said last week that the central bank's decision in September will depend on the "totality of the data and the evolving outlook."

Among the biggest reports to land in the weeks to come will be the Consumer Price Index and Producer Price Index, which could help show the direction of inflation.