Overview
The US job growth weakened abruptly in August, with the unemployment rate rising to 4.3%, according to a report released Friday by the Bureau of Labor Statistics (BLS) under the Department of Labor. This development supports the likelihood of a potential interest rate cut by the Federal Reserve this month, as labor market conditions soften.
Job Growth Details
Non-agricultural payrolls increased by only 22,000 jobs in August, following a revised upward increase of 79,000 in July. Economists surveyed by Reuters had predicted an advance of 75,000 jobs for August, following a July increase of 73,000.
The initial count for August job creation showed a weak bias, with subsequent revisions indicating strength. Estimates ranged from no job growth to the creation of 144,000 jobs.
This report comes after recent news that in July, there were more unemployed individuals than job openings for the first time since the COVID-19 pandemic.
Slowing Employment Growth
The employment growth has slowed to a standstill, with economists attributing this to President Donald Trump’s broad import tariffs and immigration crackdown, which has reduced the labor supply.
The unemployment rate increased from 4.2% in July.
Low Turnover in the Labor Market
Trump dismissed BLS Commissioner Erika McEntarfer last month, accusing her of manipulating employment data without evidence. This followed strong downward revisions to May and June payroll counts.
Economists have defended McEntarfer, attributing the revisions to the BLS’s “birth and death” modeling method, which estimates job gains or losses due to business openings or closures in a given month.
“We are experiencing low turnover in the labor market, with few hirings or firings. This means that the employment growth we see in the economy is primarily due to net new business creation,” said Ernie Tedeschi, director of economics at the Yale Budget Laboratory.
“However, this is the most modeled part. It’s more susceptible to revision because it’s an explicit BLS modeling result rather than something surveyed,” Tedeschi added.
The slow job growth is likely to be reinforced when the BLS releases its preliminary revision of the employment level for the twelve months ending in March on Tuesday.
Based on currently available data from the Quarterly Census of Employment and Wages, economists estimate that the employment level could be revised downward by up to 800,000 people. QCEW data originates from employer reports to state unemployment insurance programs.
Federal Reserve Perspective
Federal Reserve Chair Jerome Powell previously hinted at a potential interest rate cut in the upcoming monetary policy meeting, acknowledging labor market risks. However, he also noted that inflation remains a threat. The Fed has kept its target interest rate within the range of 4.25%-4.50% since December.
