US job growth experienced a sharp slowdown in August, with the unemployment rate rising to 4.3%, which indicates a softening labour market and reinforces expectations that the Federal Reserve will cut interest rates this month.
According to the Labour Department’s Bureau of Labour Statistics, nonfarm payrolls increased by only 22,000 in August, a steep decline from the revised 79,000 job gain in July.
Economists surveyed by Reuters had forecast a rise of 75,000 jobs in August, following a previously reported 73,000 increase for July.
Historically, the August employment data tends to show weaker-than-expected job growth, with revisions often showing stronger numbers. Projections for August varied widely, ranging from zero job gains to 144,000.
Job growth has stalled, with many economists blaming President Trump’s trade tariffs and immigration restrictions, which have reduced the available labour pool. The most significant weakness is seen in the hiring side of the labour market.
Trump’s tariffs have raised the nation’s average tariff rate to its highest level since 1934, fuelling inflation concerns. These tariff hikes prompted the Federal Reserve to pause its rate-cutting cycle.
However, just as trade uncertainty seemed to be easing, a US appeals court ruled last Friday that many of these tariffs were illegal, leaving businesses in limbo.
The unemployment rate rose from 4.2% in July. Trump also made headlines last month by firing the Bureau of Labour Statistics (BLS) commissioner, Erika McEntarfer, without evidence, accusing her of manipulating employment data.
This came after substantial downward revisions to payroll numbers for May and June. However, many economists have defended McEntarfer, attributing the revisions to the BLS’s “birth-and-death” model, which estimates job gains and losses from company openings and closures.
“Currently, we’re seeing a low-churn labour market, meaning there’s not a lot of hiring or firing. This means most of the job growth we are seeing comes from the net creation of new businesses,” said Ernie Tedeschi, an economist at Yale University’s Budget Lab to Reuters.
“However, this is the most sensitive data and tends to be revised heavily due to the modeling used by the BLS.”
Based on the latest data from the Quarterly Census of Employment and Wages, economists predict that the total level of employment may be revised downward by as much as 800,000.
Meanwhile, Trump has nominated E.J. Antoni, the chief economist at the conservative Heritage Foundation, to lead the BLS. However, Antoni, known for criticising the BLS and even suggesting halting the monthly jobs report, is seen as unqualified by many economists from both sides of the political spectrum.
Fed Chair Jerome Powell recently signalled that the central bank may cut interest rates at its meeting on September 16-17, acknowledging the risks in the labour market, though he also cautioned that inflation remains a concern. The Fed has maintained its benchmark interest rate at 4.25%-4.50% since December.