The unemployment rate in August hit its highest level since February 2022, data from the Bureau of Labor Statistics showed Friday.

But a jump in the unemployment rate to 3.8% from 3.5% might not be a bad sign for the overall health of the US labor market.

"This was one of those 'good reasons' increases," Jefferies US economist Thomas Simons wrote in a note on Friday. "Given the tightness in the labor market, more supply is welcome, and sometimes it takes a little while for new entrants to find a fit."

In August, the civilian labor force added 736,000 participants from the month prior. As a result, the labor force participation rate rose to 62.8% in August, its highest level since reaching 63.3% in February 2020.

The US economy has added 3.1 million civilians back into the workforce over the last year.

And economists see the August jobs report as another sign supply and demand for workers is coming into a "better balance" as the post-pandemic labor market defined by the 'Great Resignation' recedes. This, economists note, would likely be a welcome development for the Federal Reserve as Chair Jerome Powell has repeatedly stated the labor market needs better balance between supply and demand.

"Labor supply continues to surprise to the upside and is helping rebalance the labor market," Bank of America US economist Stephen Juneau wrote in a note to clients on Friday.

In August, the NFIB's small business jobs report showed 40% percent of the 611 small business owners surveyed reported job openings they couldn't fill, the lowest level since February 2021.

The Job Opening and Labor Turnover Survey, or JOLTS report, out earlier this week also revealed workers are quitting their jobs at the lowest rate since January 2021, indicating workers are valuing the certainty of employment over the possibility of a new role. Over the last year, the number of open jobs in the US has dropped by 2.5 million.

'No one left to hire'

The jump in unemployment in August was driven by younger and older workers — those between 16-24 and those 55 and older — a sign to some economists that so-called "prime age" workers, or those between 25-54, are fully engaged with the workforce.

Participation from prime age workers increased to 83.5%, matching a 21-year high previously seen in June. Economists at Wells Fargo noted that participation from older workers and teenaged workers also picked up in August, rising 0.2% and 0.8% percentage points, respectively.

"There is virtually no one left to hire in the prime age cohorts, except for roughly 50k/month new entrants into the labor force (i.e. college and HS grads)," Simons wrote. "The age cohorts with remaining slack likely won't be able to meet the skills requirements for many current job openings."

In Simons' view, this means a lack of supply will see employment gains "slow significantly."

Other factors, including the end of the student loan moratorium and dwindling pandemic era savings, could also be at play in driving folks back to seeking work as the consumer is expected to come under pressure over the back half of the year and into 2024.

But one month's data has some economists wary of calling this the start of something bigger happening in the US labor market.

"The participation rates for younger and older workers have been more volatile than for prime-age workers, so it's not clear whether the August increases mark the beginning of a sustained rise," Oxford Economics lead US economist Nancy Vanden Houten wrote on Friday.

Josh Schafer is a reporter for Yahoo Finance.

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