The US job market continues to show signs of softening, with recent data indicating rising unemployment claims and subdued hiring activity in August, setting the stage for another potentially weak jobs report. Economists are closely watching for clues on the labor market’s health amid concerns about a broader economic slowdown.
New metrics released on Thursday revealed that first-time claims for unemployment benefits climbed to an 11-week high, reaching 237,000, while private-sector businesses significantly scaled back their hiring, adding only 54,000 jobs according to ADP’s report. This follows a disappointing July jobs report that saw substantial downward revisions, painting a grim picture of the labor market’s momentum.
The August jobs report, scheduled for release on Friday, is anticipated to show a modest gain of 80,000 jobs, with the unemployment rate expected to hold steady at 4.2%. However, the three-month average job growth has plummeted to just 35,000, the slowest pace in nearly 15 years outside of the pandemic, indicating a pronounced deceleration in employment expansion.
Layoff activity has also intensified, with US-based employers announcing plans for 85,979 job cuts in August, marking the worst August for layoff announcements since the Great Recession, according to Challenger, Gray & Christmas. This surge in cuts is attributed to economic and market factors, as well as increased operations closings and bankruptcies.
The labor market’s reliance on a narrow set of industries, particularly health care and social assistance, has become more evident, with most other sectors showing muted or negative employment trends. Additionally, the unemployment rate for Black workers has risen sharply to 7.2% in July, a nearly four-year high, often seen as a precursor to broader labor market deterioration.
Wage growth is expected to slow to 3.7% annually, which, combined with rising inflation, could further dampen consumer spending. The Federal Reserve is monitoring these developments closely, with market expectations heavily favoring a rate cut in September, though the jobs data could influence their decision.
The overall labor market appears to be in a curious balance, with labor supply shrinking due to an aging workforce and reduced immigration, while demand slows amid economic uncertainty, particularly from the Trump administration’s tariff policies. This environment has left workers and jobseekers with fewer opportunities, raising questions about whether the slowdown is temporary or structural.
As the economy navigates this period of transition, the August jobs report will provide critical insights into whether the labor market is merely settling into a new normal or facing a more serious downturn, with implications for monetary policy and economic outlook.