US labor market report paves way for Fed rate cut – Orange County Register

By CHRISTOPHER RUGABER

WASHINGTON — American employers' hiring increased slightly in August from a subdued pace in July, and the unemployment rate fell for the first time since March, a sign that the labor market, while cooling, remains stable.

Employers added a modest 142,000 jobs, compared with nearly 89,000 in July, the Labor Department said Friday. The unemployment rate fell to 4.2% from 4.3%, the highest in nearly three years. However, hiring figures in June and July were revised down sharply, by a total of 86,000. July's job gain was the smallest since the pandemic.

“The labor market is weakening,” said Eugenio Aleman, chief economist at Raymond James Financial. “It's not collapsing, but it's getting weaker.”

The declining jobs numbers underscore why the Federal Reserve will cut its benchmark interest rate at its next meeting on Sept. 17-18, while inflation is steadily declining toward its 2% target. Still, Friday's mixed jobs data raises questions about how big a rate cut the Fed will announce. It could decide to cut its benchmark interest rate by a typical quarter of a percentage point, or a larger one than the usual half a percentage point. In the coming months, policymakers will also decide how much and how quickly they will cut rates at their next meetings.

Christopher Waller, an influential Fed policymaker, indicated in a speech on Friday that the central bank was leaning toward a quarter-percentage-point cut this month, but he left open the possibility of larger rate cuts later in the year if necessary.

“I do not expect this first cut to be the last,” Waller said in a speech at the University of Notre Dame. “With inflation and employment approaching our long-term goals and the labor market weakening, it is likely that a series of cuts will be appropriate.”

“I am open-minded,” he added, “about the size and pace of the cuts. They will be guided by what the data tells us about the development of the economy.”

Waller also said that the economy and the labor market are still growing and “the outlook for continued growth and job creation is good.” This is a sign that he believes a quarter-percentage point cut in the Fed's key interest rate is appropriate for the Fed's first rate cut.

Overall, Friday's figures show that the labor market is softening under the pressure of high interest rates, but is still growing. Many companies appear to be holding off on creating new jobs, in part because of uncertainty about the outcome of the presidential election and how quickly the Fed will cut its benchmark interest rate in the coming months.

Daniel Zhao, chief economist at career website Glassdoor, said some details in the August jobs report suggested that companies' demand for workers was easing, and the number of Americans who work part-time but would rather work full-time was increasing, continuing a years-long trend.

“A closer look reveals figures that confirm that the labor market is on a cooling trend,” Zhao said.

The American labor market is currently in an unusual position: jobs are largely secure and layoffs are historically low, but as hiring has slowed, it has become more difficult to find a job.

Christopher Millan, an unemployed operations manager in Miami, has found the job market to be much more unforgiving than when he last looked for work in 2022. Millan, 34, who was laid off from an interactive kiosk company in February, has since applied for more than 1,000 jobs. He has landed few interviews and received no offers.

Two years ago, he said, it only took him a few months to find a new job.

He recently heard about a job opening in his field from a friend, but after applying, he was told the company had imposed a hiring freeze until the fall. Millan believes many companies are hesitant to fill their open positions because they are uncertain about the economic outlook.

“I feel like everyone is battening down the hatches,” he said. “It's very frustrating.”

Over the past three months, there have been an average of just 116,000 new jobs per month, down sharply from the 211,000 average a year ago. Over time, that may not be enough to keep up with the growing number of job seekers, economists say. The influx of immigrants over the past three years has expanded the country's labor force.

And August's job gains were concentrated in just a few industries: Health care added 44,000 jobs, food services, hotels and entertainment added 46,000, and construction added 34,000. The steady rate of hiring in food services and hotels may be due to continued gains in consumer spending, which rose even after adjusting for inflation last month. Manufacturing and retail lost jobs in August.

In a major speech last month, Fed Chairman Jerome Powell said Fed policymakers had effectively kept inflation in check by keeping interest rates high and did not want a further slowdown in the labor market. The central bank is trying to achieve a “soft landing” in which it manages to reduce inflation from a peak of 9.1 percent in 2022 to its target level without triggering a recession. A lower Fed rate will ultimately lead to lower borrowing costs for a range of consumer and business loans, including mortgages, auto loans and credit cards.

Right now, companies are posting fewer jobs and hiring fewer people. At the same time, Americans are far less likely to quit their jobs than they were shortly after the economic recovery from the pandemic. In a strong labor market, workers are more likely to quit, usually for better-paying jobs. When the number of quits declines, it means fewer jobs will become available for the unemployed.

Becky Frankiewicz, North America president of staffing firm ManpowerGroup, said uncertainty surrounding the presidential election and the Fed's next steps led many companies to hold off on new investments and hiring.

“The whole world is waiting to see what happens in our election,” she said. “We have this big waiting game. Nobody wants to make any big moves yet.”

Nevertheless, according to Frankiewicz, the labor market currently appears to be stable.

“The ground is not breaking away and we are not seeing a rocket ship,” she said. “There is stability.”

A slower hiring rate is often a harbinger of layoffs – one reason why Fed policymakers are now more focused on maintaining a healthy labor market than on continuing to fight inflation.

The Fed's Beige Book, a collection of anecdotes from the Fed's 12 regional banks, reported that many employers became more selective about hiring in July and August. And a Conference Board survey in August found that the share of Americans who say it is hard to find a job rose – a trend that often accompanies higher unemployment rates.

At the same time, consumer spending, the main driver of economic growth in the US, rose at a healthy pace in July. And in the April-June quarter, the economy grew at a solid 3% year-on-year.

Originally published: September 6, 2024 at 12:17 p.m.