US Job Growth Slows in August, Unemployment Near Four-Year High, Fed Rate Cut Expected
The US labor market showed signs of weakness in August, with job growth slowing sharply and the unemployment rate rising to 4.3%, its highest level in nearly four years. The latest data reinforces concerns about a softening economy and increases the likelihood of a Federal Reserve interest rate cut later this month.
According to the Labor Department’s closely watched employment report, the economy even lost jobs in June—the first decline since 2020—adding to fears of economic stagnation. Economists point to policies under President Donald Trump, including tariffs on imports, a crackdown on immigration, and widespread government layoffs, as contributing factors.
“The economy is skating as close to the edge of recession as you can get,” said Christopher Rupkey, chief economist at FWDBONDS. “Companies are clearly hesitant to hire, and the only remedy is a Fed rate cut.”
Weak Job Gains and Revisions
Nonfarm payrolls increased by just 22,000 in August, well below economists’ expectations of 75,000. July’s figures were revised upward to 79,000 from the initially reported 73,000. Meanwhile, June payrolls were adjusted downward, showing a loss of 13,000 jobs rather than the previously reported gain of 14,000.
These revisions followed earlier adjustments for May and June that highlighted slower-than-expected hiring, which prompted Trump to fire the Bureau of Labor Statistics (BLS) commissioner, Erika McEntarfer, over allegations of manipulated employment data—a claim economists say lacks evidence.
The BLS uses a “birth-and-death” model to estimate job gains or losses from businesses opening or closing, which contributed to the revisions.
Policy and Market Implications
While Trump did not comment directly on the August report, he continued his criticism of Federal Reserve Chair Jerome Powell for maintaining high borrowing costs, stating on social media that Powell’s rate decisions were “Too Late!”
Trump’s tariffs have raised the nation’s average tariff rate to its highest since 1934, sparking concerns about inflation and contributing to cautious hiring. A recent US appeals court ruling declared many tariffs illegal, further heightening business uncertainty.
Economists note that the August payroll figure could see upward revisions due to seasonal patterns, but overall job growth has slowed significantly. Over the past three months, the US economy has added an average of 29,000 jobs per month, down from 82,000 in the same period last year.
Sector Analysis
Healthcare led hiring in August, adding 31,000 jobs, although this is below the 12-month average of 42,000 per month. Social assistance employment grew by 16,000 positions. However, government payrolls fell by 15,000, contributing to a cumulative loss of 97,000 jobs in federal employment since January.
Manufacturing employment declined for the fourth consecutive month, reflecting the impact of tariffs. Other sectors reporting job losses include wholesale trade, information, financial activities, construction, and professional services.
Despite these weaknesses, wages remain a positive factor. Average hourly earnings rose 0.3% in August, maintaining the July gain, and were up 3.7% year-over-year, slightly down from 3.9% in July. However, reduced hours worked may constrain overall economic growth.
“Today’s data raises more questions about the growth outlook than about Fed policy,” said Michael Feroli, chief economist at J.P. Morgan. “Private hours worked are contracting, suggesting caution is warranted for the next quarter.”
Financial Market Reactions
Investors now widely expect a 0.25 percentage point rate cut at the Federal Reserve’s September 16-17 meeting, with two additional cuts likely later in the year. Following the report, Wall Street stocks dipped, the dollar weakened against major currencies, and US Treasury yields fell.
The unemployment rate rose from 4.2% in July to 4.3% in August. The household survey indicated 436,000 people joined the labor force, but employment only increased by 288,000, reflecting the challenges in absorbing new job seekers.
The duration of unemployment increased to 24.5 weeks, the longest since April 2022. The report also
noted that more individuals have permanently lost jobs, reflecting deeper issues in the labor market.