The latest U.S. jobs report indicates a slight improvement in hiring, but raises questions about how aggressively the Federal Reserve will cut interest rates in its upcoming meetings.
In August, employers added 142,000 jobs, a welcome increase from July’s modest gain of 89,000, according to the Labor Department. The unemployment rate dropped to 4.2%, down from 4.3%– the highest level seen in nearly three years. However, revisions to the hiring figures for June and July showed a decline of 86,000 jobs, highlighting a weaker-than-expected labor market.
These mixed results suggest that while the job market is facing pressures from elevated interest rates, it continues to display growth. The Federal Reserve is anticipated to implement a rate cut during its next meeting on September 17-18 as inflation trends back toward its 2% target. The uncertainty about the size of the cut remains, with the possibility of a standard quarter-point reduction or a larger half-point cut.
The report reflects a labor market that is gradually slowing down due to ongoing economic challenges, including uncertainties tied to the upcoming presidential election. Many companies appear hesitant to add new positions. Daniel Zhao, lead economist at Glassdoor, noted signs of decreasing demand for workers, as more Americans have been seeking full-time employment while working part-time.
Despite the decline in hiring pace, job security remains high, with layoffs at historically low levels. However, job-seeking has become more competitive. In fact, the average job growth over the past three months has dropped to 116,000, significantly lower compared to an average of 211,000 a year ago. Most job gains in August were concentrated in the health care, restaurant, hotel, and construction sectors, indicating that consumer spending is still robust.
Federal Reserve Chair Jerome Powell previously indicated a desire to maintain the job market’s health while managing inflation. The central bank is aiming for a “soft landing,” where inflation nudges down from a 9.1% peak without sparking a recession. A reduction in the Fed’s benchmark rate could ease borrowing costs for various loans, including mortgages and credit cards.
Currently, companies are displaying a cautious approach to hiring, resulting in fewer job openings. Many workers are less inclined to leave their jobs than they were during the economic recovery post-pandemic, leading to fewer opportunities for those in search of employment.
Becky Frankiewicz, from ManpowerGroup, emphasized that companies are refraining from making major hiring moves due to uncertainty, particularly around the presidential election and the Fed’s potential rate adjustments.
While hiring has slowed, the job market does not appear to be in freefall; instead, it seems to be stabilizing. However, reduced hiring can often signal impending layoffs, which is something the Fed is closely monitoring as it seeks to support the labor market while managing inflationary pressures.
Recent reports indicate that employers are becoming choosier, and surveys suggest an increasing perception among Americans that jobs are now harder to find. This has historically been linked to rising unemployment rates. Meanwhile, consumer spending continues to show positive growth, and the economy exhibited a strong 3% growth rate in the previous quarter.
On the same day, Christopher Waller from the Fed’s Board of Governors is slated to deliver remarks at the University of Notre Dame, which may provide additional insight into the Fed’s upcoming decisions. Some experts believe that substantial rate cuts could encourage companies to ramp up hiring once again.