US unemployment rate near 4-year high as labor market hits stall speed

WASHINGTON: U.S. job growth weakened sharply in August and the unemployment rate increased to nearly a four-year high of 4.3%, confirming that labor market conditions were softening and sealing the case for a Federal Reserve interest rate cut later this month.

The Labor Department’s closely watched employment report on Friday also showed the economy lost jobs in June for the first time in four and a half years, fanning fears of economic stagnation.

Job growth has slowed since April, with economists blaming President Donald Trump’s policies, mainly tariffs on imports, an immigration crackdown and mass firings of public workers.

“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 hunkering down and refusing to hire and the blame can be traced back to Washington’s economic agenda. The only medicine to help is a rate cut from the Fed.”

Nonfarm payrolls increased by only 22,000 jobs last month after rising by an upwardly revised 79,000 in July, the Labor Department’s Bureau of Labor Statistics (BLS) said.

Economists polled by Reuters had forecast payrolls would rise by 75,000 jobs after a previously reported gain of 73,000 in July.

Revisions to the establishment survey data also showed payrolls declined by 13,000 jobs in June, the first drop since December 2020, rather than rising by 14,000, as had been reported last month.

Those revisions confirmed the weak trend flagged by massive downgrades to the May and June payrolls counts in the July report that led Trump to fire the BLS’ commissioner, Erika McEntarfer. The president accused her, without evidence, of manipulating the employment data.

Economists attributed the revisions to the “birth-and-death” model, a method the BLS uses to try to estimate how many jobs were gained or lost because of companies opening or closing in a given month.

While Trump on Friday did not directly comment on the employment report, he reiterated his longstanding grievance with Fed Chair Jerome Powell over high borrowing costs.

Long-dated bonds are facing renewed selling pressure, creating a headache for investors around the world

“Jerome ‘Too Late’ Powell should have lowered rates long ago. As usual, he’s ‘Too Late!'” Trump wrote on his Truth Social media platform.

E.J. Antoni, Trump’s choice to head the BLS, has penned opinion pieces critical of the agency and even suggested suspending the monthly employment report. Antoni is viewed as unqualified by economists across the political spectrum.

Trump’s import duties have boosted the nation’s average tariff rate to the highest level since 1934 and stoked fears of higher inflation, prompting the U.S. central bank to pause its interest rate cuts.

Just as some of the uncertainty over trade policy was starting to lift with most tariffs now in place, a U.S. appeals court ruled last Friday that many of the duties were illegal, keeping businesses in a state of flux.

WEAK BIAS IN AUGUST
August’s payrolls could be revised higher as the initial job count has tended to exhibit a weak bias because of a seasonal quirk. Nonetheless, employment growth has softened considerably, averaging 29,000 jobs per month in the last three months, compared to 82,000 during the same period in 2024.

Slow job growth is likely to be reinforced when the BLS on Tuesday publishes its preliminary revision estimate to the level of employment for the 12 months through March.

Based on the currently available Quarterly Census of Employment and Wages data, economists estimate the level of employment could be revised down by as much as 800,000. The QCEW data is derived from reports by employers to the state unemployment insurance programs.

The bulk of the jobs added in August were in healthcare, with payrolls in the sector rising by 31,000. But even this labor market pillar is showing strain, as the increase was below the average monthly gain of 42,000 over the last 12 months.

Employment in the social assistance industry rose by 16,000 positions. Government data this week showed healthcare and social assistance job openings posting large back-to-back declines in July.

Federal government payrolls dropped by 15,000 and employment in that area is now down 97,000 since January, amid deep spending cuts by the White House.

A sharp decrease is expected in October after employees collecting severance pay fall off payrolls in September. Manufacturing shed jobs for the fourth straight month, underscoring the impact of tariffs.

There were also job losses in a number of other sectors, including wholesale trade, information, financial activities, construction, and professional and business services.

Wages, however, remain the labor market’s bright spot and could help sustain the economic expansion for now. Average hourly earnings increased 0.3%, matching the gain in July.

In the 12 months through August, wages advanced 3.7% after rising 3.9% in the comparable period in July. But a drop in hours worked raised concerns about economic growth prospects.

“Today’s news probably raises more questions about the growth outlook than about the Fed outlook,” said Michael Feroli, chief economist at J.P. Morgan.

“With the August data in hand, private hours worked look to be contracting at about a 0.5% annual rate this quarter. At this point, we are inclined to take a little more signal from the labor data and remain cautious about growth prospects next quarter.”

Read More: UK house prices rise 0.3% in August

Financial markets expect the Fed will deliver a quarter-percentage-point rate cut at its September 16-17 policy meeting, with two more such moves at its remaining two meetings in 2025. The central bank has kept its benchmark overnight interest rate in the 4.25%-4.50% range since December.

Stocks on Wall Street were trading lower. The dollar declined against a basket of currencies. U.S. Treasury yields fell.
The unemployment rate edged up from 4.2% in July to the highest level since October 2021. The household survey from which the jobless rate is derived showed 436,000 people entered the labor force, but employment only increased by 288,000.

Economists were skeptical of the labor force increase. The Trump administration has terminated temporary legal status for hundreds of thousands of immigrants.

More people experienced long bouts of unemployment in August. The average duration of joblessness jumped to 24.5 weeks, the longest since April 2022, from 24.1 in July. There were more people who have permanently lost their jobs.

“The labor market has hit stall speed,” said Nicole Cervi, an economist at Wells Fargo.