Markets end the day mostly higher after key jobs data shows steady slowdown

Stocks ended the first trading session of September mostly higher, but off their highs after the latest jobs report showed the labor market is continuing to cool.

The Dow rose 116 points, or 0.3%. The S&P 500 gained 0.2% and the Nasdaq Composite lost 0.02%.

The US economy added 187,000 jobs in August, according to fresh data from the Bureau of Labor Statistics. That's above economists' expectations of a 170,000 gain but still a slowdown from the past two years of growth.

The unemployment rate rose to 3.8% from 3.5%. Economists expected the unemployment rate to stay steady.

"From a data-dependent Fed perspective, the economic data we have seen in August in conjunction with today’s jobs report certainly reinforces the idea that we have seen the last rate hike during this cycle," said Charlie Ripley, senior investment strategist at Allianz Investment Management.

All three major indexes gained for the week, continuing the market's rally from the prior week after stocks wavered for much of August.

Meanwhile, Lululemon shares gained 6% as the retailer reported an earnings beat after the close on Thursday.

Dell Technologies shares added 21% after beating top- and bottom-line expectations for its latest quarter.

Robinhood shares jumped 2% after the company repurchased $605 million worth of the company's shares that were once owned by fallen cryptocurrency exchange FTX's former chief executive Sam Bankman-Fried.

Walgreens Boots Alliance shares fell 7.4% after the company announced that CEO Rosalind Brewer has stepped down after just under three years in the role.

Tesla shares fell 5.1% as investors worried that the EV-maker's price slashes for some of its models would hurt its balance sheet.

As stocks settle after the trading day, levels might change slightly.

Stocks turned mostly lower on Friday as investors continued to review the latest employment report.

The Dow Jones Industrial Average index rose 63 points, or 0.2%. The S&P 500 lost 0.01% and the Nasdaq Composite fell 0.3%.

The market initially rallied Friday morning as investors cheered a slowdown in the labor market that raised their hopes that the Federal Reserve could press the brakes on its interest rate-hiking campaign sooner than expected.

All three major indexes are still on pace to close the week higher.

The US economy is moving in the right direction and experiencing a strong recovery, President Joe Biden said Friday after the August jobs report was released.

"As we head into Labor Day, we ought to take a step back and take note of the fact that America is now in the strongest job-creating periods in our history, the history of our country," Biden said in remarks from the Rose Garden. 

The president also touted his administration's "Bidenomics" economic philosophy, saying: “It’s about investing in America and investing in Americans. It’s working."

August's job gains were broad-based and occurred across most sectors, with some of the largest increases seen in health care, leisure and hospitality and construction. 

Several of those critical sectors continued to claw back workers after sustaining deep job losses during the pandemic; however, many have yet to return to the employment levels of February 2020 or before.

Leisure and hospitality, which added jobs for the 32nd consecutive month with a 40,000-position net gain in August, remains 290,000 jobs, or 1.7%, below pre-pandemic totals. A big laggard within that sector has been the accommodation industry, which remains 238,000 jobs, or 11.3%, below where it was in early 2020.

Child care services added 3,000 jobs in August but remains 41,000 positions, or 3.8%, below February 2020 levels. The industry plays a critical role in the economy: Without reliable child care, parents are forced to stay home and potentially out of the labor force.

Government jobs, specifically state and local positions as well as educational roles, continue to trail pre-pandemic levels by 213,000 jobs, or 0.9%, shy of February 2020 levels.

"Coming out of the pandemic, the private sector was able to boost wages pretty rapidly, much more strongly than most public sector positions would be able to," Dante DeAntonio, senior economist at Moody's Analytics, told CNN. "So, they were able to scoop up that early labor supply a lot more quickly."

He added: "More recently, you've seen that balance start to shift a little bit, where hiring in the private sector has slowed more definitively, wage growth has pulled back some ... and at the same time, you finally see the public sector ramp up their recruiting efforts in terms of being able to offer slightly more competitive pay."

Still, there are some shortfalls at a critical time of year.

While the public sector overall added 8,000 jobs in August and continued a 15-month stretch of job growth, state and local education saw losses of 4,900 and 10,200, respectively.

"The decline suggests that our K-12 schools are yet again starting the school year with many unfilled vacancies," Julia Pollak, chief economist with ZipRecruiter, wrote in commentary Friday.

Stocks lost their steam Friday mid-morning after initially rallying on a slowdown in the latest job data.

The Dow Jones Industrial Average Index rose 63 points, or 0.2%. The S&P 500 gained 0.2% and the Nasdaq Composite fell 0.1%.

Still, all three major indexes are set to end the week higher, boosted by a slate of cool economic data this week that raised investors' hope that the Federal Reserve could ease up on its interest rate hikes.

All sectors of the S&P 500 except for utilities are set to end the week higher.

The labor force participation rate rose to 62.8% in August, according to the Bureau of Labor Statistics.

That's the highest it's been since the onset of the pandemic; however, it remains below pre-pandemic levels.

"If sustained, this increase in the labor force could help cool off wage growth and slow inflation," said Gus Faucher, PNC Financial Services' chief economist, in a statement.

That's exactly what the Federal Reserve is hoping for as it aims for a soft landing, or bringing down inflation without tanking the economy and throwing millions of Americans out of work.

Labor force participation rates have been on the decline — largely due to demographic changes — since hitting a high of 67.3% in early 2000 and had fallen to 63.3% in the month before the onset of the pandemic. The participation rate sank to 60.1% in April 2020 and has slowly crawled higher in the three-plus years since.

It's remained below pre-pandemic levels mostly due to permanent demographic shifts, including Baby Boomers reaching retirement age, accelerated early retirements during the pandemic, deaths from Covid and workers staying home with long Covid or to care for people with Covid.

The White House touted the jobs report Friday, categorizing it as proof that the US economy is headed for a soft landing, where inflation comes down without disrupting the labor market.

In an interview with CNN's Kate Bolduan, Acting Labor Secretary Julie Su said the August jobs report is "what you want to see if you are looking for a soft landing."

"It is continued job growth," she said, noting that the pace of monthly job gains is no longer at the "breakneck speed that we saw at the beginning of the recovery."

The Federal Reserve is aiming for a continued steady slowdown in the labor market as businesses and households react to the 11 rate hikes the central bank rolled out to cool off demand amid decades-high inflation.

Outside of the pandemic extremes, the United States has had an unemployment rate of under 4% for the longest stretch since the 1960s, Su said.

"People have more money in their pockets and a little bit more breathing room," Su said, noting year-over-year wage growth. "This is a sign that Bidenomics is doing what we hoped it would do."

Workers are coming back into the labor market and workers are leaving for better jobs, Su told Bolduan.

"We are seeing not just people in the labor market, but people who have not been in it before, people who have felt maybe left out from opportunity in the past."

The unemployment rate among Black workers fell for the second-consecutive month, continuing a downward path after suddenly spiking in recent months.

In August, the Black unemployment rate was 5.3%, a 0.5 percentage point slide from July.

The jobless rate for Black workers had been falling for much of the past year and hit a record low of 4.7% in April. However, the rate shot up nearly a whole percentage point in May to 5.6% and then jumped again in June to 6%, before dipping back down a month later.

The monthly unemployment data can be "notably volatile," Elise Gould, an economist with the Economic Policy Institute wrote in commentary Friday.

"I'm hopeful that those upticks were statistical blips," she wrote. "The unemployment drop was accompanied by an increase in employment, though participation softened as well."

Usually when the economy adds a lot of jobs in a given month the unemployment rate ticks down. That wasn't the case in August.

Despite the 187,000 new jobs added last month, the unemployment rate rose to 3.8% from 3.5% in July. That's the biggest one-month jump since May. And outside of the onset of the pandemic, the last time the unemployment rate rose that high in one month was November 2011.

What gives?

By definition, the unemployment rate captures the share of unemployed people as a percentage of the labor force. The labor force is the total number of people employed and unemployed. To be considered unemployed, you don't necessarily have to have been laid off recently.

The Bureau of Labor Statistics classifies someone as unemployed if they aren't working but are available for work and made a specific effort in the past month to find a job. If they don't satisfy that criteria, they aren't considered part of the labor force.

Last month, the number of unemployed people rose by 514,000 to 6.4 million. But the number of people employed rose by 222,000 to 161.5 million. The net effect of that meant the labor force grew by 736,000 people to 167.8 million. So, mathematically, when you divide 6.4 million by 167.8 million, you'll arrive at the 3.8% unemployment rate.

Numbers aside, this means that more people started actively looking for jobs last month even if they weren't recently let go from their job. At the same time, fewer people had jobs.

But wait – weren't 187,000 new jobs added last month?

That is correct. Technically speaking, nonfarm payroll employment grew by 187,000. That figure is the product of the BLS' monthly survey of over 100,000 businesses and government agencies. However, the data used to calculate the unemployment rate comes from a different monthly survey of around 60,000 households that the Census Bureau conducts for the BLS.

Put plainly, one survey asks businesses how many people they hired and laid off last month and the other survey asks individuals if they were hired or laid off last month. 

The survey of workers found that there were 34,000 fewer transportation and warehousing jobs last month compared to July. That figure is not captured in the survey of businesses. That can help explain why the unemployment rate rose, even though there were stronger-than-expected job gains in August.