Warning signs of a weakening US labor market grew more evident in July and early August, with rising unemployment claims, fewer new hires, and an uptick in layoff announcements. Economists are bracing for the August jobs report, which is expected to show only modest gains, highlighting the challenges facing both workers and policymakers.
July’s Disappointing Performance
The July jobs report revealed just 73,000 new positions, far below expectations and sharply lower than June’s preliminary tally. Revisions to May and June erased a combined 250,000 jobs, leaving a three-month average of only 35,000. This marked the slowest pace of job creation in nearly 15 years outside of the pandemic. The fallout included President Trump’s controversial decision to dismiss Bureau of Labor Statistics Commissioner Erika McEntarfer, sparking concerns about political interference in economic data.
Hiring Weakness and Shrinking Supply
Economists estimate that August payroll gains will reach about 80,000, with unemployment steady at 4.2 percent. Hiring has slowed dramatically compared with prior years, partly due to an aging workforce, reduced immigration, and business uncertainty linked to tariffs. While layoffs remain limited, job openings have declined, and continuing claims for unemployment benefits are hovering near four-year highs, making it harder for jobseekers to find new opportunities.
August Data Shows Mixed Signals
ADP’s private payroll report indicated only 54,000 new jobs in August, with leisure and hospitality driving most of the gains. Other industries, including trade, education, and manufacturing, saw declines. Meanwhile, first-time unemployment claims rose to 237,000, the highest in 11 weeks. Layoff announcements also spiked, making last month the worst August for planned job cuts since the Great Recession outside of the pandemic.
Key Factors to Watch
Several trends will be closely monitored in the upcoming jobs report. Revisions may further lower recent job growth estimates, while reliance on a few sectors such as health care suggests narrow labor market strength. Black unemployment has risen sharply, reaching 7.2 percent in July, signaling possible deeper structural issues. Wage growth is also slowing, with estimates pointing to 3.7 percent annual gains, a concern as inflation ticks upward.
Policy Implications
The Federal Reserve faces pressure to cut interest rates at its September meeting, with markets pricing in a near-certain reduction. However, if job growth exceeds expectations, some policymakers may prefer to wait and evaluate inflation trends before acting. For now, the data indicates a fragile balance in the labor market, with limited opportunities for workers and growing uncertainty for businesses.
