The U.S. unemployment rate rose to 4.3% in July and hiring slowed, adding to signs of a broader downturn in what has been a solid U.S. economy. <\/p>\n
The Bureau of Labor Statistics reported Friday that the U.S. added 114,000 jobs, down from 206,000 in June and well short of expectations. Economists were expecting the unemployment rate to have been unchanged from June\u2019s 4.1% reading. <\/p>\n
The latest report will likely add to worries from some economists that the Federal Reserve has waited too long to cut interest rates in its bid to stamp out inflation. Earlier this week, Fed Chair Jay Powell indicated the first rate cut of the post-pandemic period would come in September, even as many economists flagged signs of a rapidly cooling labor market.<\/p>\n
Friday\u2019s report adds further evidence to those concerns.<\/p>\n
A worker moves packages at an Amazon same-day delivery fulfillment center in Bronx, N.Y., on July 16, 2024. <\/span>Stephanie Keith \/ Bloomberg via Getty Images<\/span><\/p>\n \u2018Oh dear, has the Fed made a policy mistake?\u2019 wrote Seema Shah, chief global strategist at Principal Asset Management based in the UK, in a note to clients following the jobs report\u2019s release. \u2018The labour market\u2019s slowdown is now materialising with more clarity.\u2019<\/p>\n She noted job gains have now dropped below the 150,000 threshold \u2018that would be considered consistent with a solid economy,\u2019 and that a September rate cut \u2018is in the bag.\u2019<\/p>\n \u2018The Fed will be hoping that they haven\u2019t, once again, been too slow to act,\u2019 Shah said.<\/p>\n Beyond the report\u2019s headline figures were mitigating factors and other signs that the economy remains on relatively firm footing. <\/p>\n Much of the increase in the unemployment measure was driven by temporary layoffs, while the BLS indicated that weather-related factors had temporarily increased the ranks of those who still hold jobs but were technically not at work during the month. \u00a0 <\/p>\n Meanwhile, wage gains continued to outpace inflation \u2014 continuing a trend that has now taken hold for months \u2014 and more people rejoined the workforce last month, something reflected in an increased labor force participation rate.<\/p>\n Yet outside of health care, construction and some transportation and warehousing roles, there was little meaningful job growth, with manufacturing adding just 1,000 to its payrolls and professional and business services positions declining by 1,000. <\/p>\n \u2018Even a few months ago, the labor market seemed fine, the trajectory looked stable,\u2019 said Guy Berger, director of economic research at the\u00a0Burning Glass\u00a0Institute, a think tank. \u2018Today, things look a bit shakier.\u2019<\/p>\n While Berger doesn\u2019t see an imminent recession, it wouldn\u2019t take much for the gradual downturn to become a more significant one, he said.<\/p>\n The Federal Reserve doesn\u2019t envision that outcome \u2014 and in fact is largely in control of it, economists say.<\/p>\n On Wednesday, the Fed announced that it was leaving its key interest rate unchanged at about 5.5% even as Powell said a cut at its next meeting was \u2018on the table.\u2019<\/p>\n By cutting interest rates, the central bank would reduce the cost of borrowing for goods and services, which would result in lower monthly payments for consumers and businesses alike who are subject to variable annual percentage rates.<\/p>\n In turn, demand and hiring are likely to increase throughout the economy. <\/p>\n On average, companies are hanging on to their current workers \u2014\u00a0something reflected in the rate of layoffs\u2019 falling to a record low.<\/p>\n Yet the hiring rate has also fallen to a level not seen since the onset of the pandemic \u2014\u00a0and before that, 2014. <\/p>\n The upshot: If you have a job, you\u2019re unlikely to lose it these days, barring some exceptions.<\/p>\n But you\u2019re going to struggle if you\u2019re looking for a new one.<\/p>\n The Fed therefore believes it can put a floor underneath the labor market that prevents it from deteriorating further, Berger said.<\/p>\n While there is reason to believe it can accomplish that, there is an alternative view that it is already behind the curve and should have cut interest rates by now.<\/p>\n \u2018Historically, deteriorating labor markets generate a self-reinforcing feedback loop,\u2019 former New York Federal Reserve President Bill Dudley wrote in a Bloomberg News op-ed last week. \u2018When jobs are harder to find, households trim spending, the economy weakens and businesses reduce investment, which leads to layoffs and further spending cuts.\u2019\u00a0 <\/p>\n Another worrying sign: The job growth that is occurring has been in an exceptionally narrow range of occupations, like health care and, to a lesser extent, government, particularly at the state and local levels.<\/p>\n