This particular August jobs report may be the most closely watched snapshot of the labor market since the coronavirus pandemic.
“This is the biggest jobs report in a number of years in terms of its importance for the Fed and how much it corroborates [the weakness] we’ve seen in other more closely watched labor market data,” said Sarah House, an economist at Wells Fargo. “The jobs market is in a good place, but the fact that we have this negative momentum is what worries me.”
The labor market has been steadily cooling over the past year, weighed down by elevated interest rates designed to temper inflation. But a spike in the unemployment rate to 4.3 percent in July, the highest level since 2021, taken with other weak jobs data, sparked widespread recession fears and a major Wall Street sell-off last month.
Indeed, the flurry of sluggish jobs data — including recent downward revisions to jobs data — has prompted concerns that the Federal Reserve waited too long to lower rates causing cracks in the labor market that could snowball into widespread joblessness. The Fed is expected to cut interest rates for the first time since the pandemic began when policymakers meet in mid-September. That cut could be as much as a supersized half-point instead of a more typical quarter-point.
“This employment report has taken on such an outsized value, because the Fed has now pivoted from whether they’re going to cut [rates] to the question of how much and how fast,” said Diane Swonk, chief economist at KPMG.
Recent data suggests the labor market has turned softer than it was before the pandemic. Job openings have fallen significantly, with a little more than just one job opening for every unemployed worker, down from a peak of 2 jobs per unemployed person in 2022, according to a separate labor market report. Earlier in the summer, the pace of hiring sank to the lowest point since the early months of the pandemic.
Wage growth has also cooled considerably, to the slowest pace since May 2021, according to the latest data.
The warning signs go on. The average length of the private sector workweek has fallen to 34.2 hours, matching the lowest level in more than a decade — in a sign that employers are cutting back on labor costs. Furloughs have spiked to a nearly three-year high. And recently, the biggest downward revision in jobs data since 2009 showed that the United States added 818,000 fewer jobs in 2023 and early 2024 than previously reported, giving ammunition to critics who suggest the Fed may have held off too long on cutting interest rates. Those revisions also suggest current jobs creation may be weaker than data shows.
Still, economists say the current unemployment rate combined with healthy but tempered jobs creation is robust enough to keep the economy afloat. Layoffs remain near record lows. The share of Americans 25 to 54 years old participating in the labor force remains at longtime highs. And American consumers are still spending big, giving employers reason to keep workers on payroll.
“It’s not a spectacularly good labor market. But if this was a steady state, that’d be fine,” said Guy Berger, director of economic research at the Burning Glass Institute, a labor market analytics non profit. “The problem is that there’s a fair amount of evidence that it’s not a steady state. Things are still cooling.”
Last month’s leap in the unemployment rate appeared to be driven at least in part by temporary forces. Hurricane Beryl and high summer temperatures sidelined workers en masse. And a surge of people newly looking for work mostly drove July’s unemployment spike rather than layoffs, data shows.
But recessions typically start with a sudden jump in the unemployment rate, a major reason policymakers are keeping close watch on Friday’s report. The softening is disproportionately hurting Black, Hispanic and young workers — who tend to be more vulnerable to labor market weaknesses.
In another warning sign, job growth over the past year has been propelled by a just few key service-related industries: health care, government and social assistance. Beyond those industries, hiring — especially for white-collar jobs — has mostly stalled.
“Employers are not bringing many people in or many people out,” said Berger, the Burning Glass Institute economist. “That creates a pretty sharp bifurcation. For people who have a job, things feel reasonably good right now. But for a person that is looking for a job or really needs one, this is a tough job market.”
Damien Nicharico, 22, of North Tonawanda, N.Y., recently completed a building trades program at a vocational school. Yet he has struggled since April to find permanent work in construction or even employers in his town. He’s applied to at least 50 construction jobs as well as positions at a local supermarket, dollar store and bank.
“They ghost you completely or don’t respond even after I follow up,” said Nicharico, who has picked up a string of short-term residential construction gigs from his uncle and delivered food on DoorDash. “I get the sense that applications are up when they don’t need or want you.”
