The U.S. economy created an extremely weak 22,000 jobs in August, and the unemployment rate climbed to a four-year high of 4.3% in a continued deterioration of the labor market severe enough that a Federal Reserve rate cut appears to be a near certainty less than two weeks from now.
Analysts have been forecasting a quarter-point reduction in the Fed’s benchmark interest rate in the weeks since the central bank’s policymaking panel last met, at the end of July, as economic reports chronicled a slowing economy.
That’s despite core inflation, as measured by the Fed’s preferred Personal Consumption Expenditures Price Index, climbing 2.9% in July, the highest increase since February. The core reading strips out the volatile food and energy categories for a clearer look at the overall picture.
“The Fed has two goals: keep the labor market healthy and keep inflation in check,” Ian Wyatt, director of economics at recreational marine lender Huntington Commercial Bank, told Trade Only Today. “While inflation is still above target, the weakening jobs growth data is leading Fed officials to focus more on keeping the labor market healthy. The reality is the Fed is likely going to cut the short-term fed funds rate at the next meeting by 0.25%, or 25 basis points.
“The above-target inflation will likely prevent the Fed from making a larger move in September,” Wyatt adds. “The problem for boat dealers is while cutting the fed funds rate can lower dealers’ floorplan expenses, it does little to impact buyers who use fixed-rate loans. The weaker economic data may help drive down longer rates, but so far the reaction in the market has pushed down short-term rates more than long-term rates.”
Chad Lyon, managing director, global inventory finance, at Wells Fargo, told Trade Only Today that the “August job report has the market thinking there is a possibility that the Fed might reduce rates at the next meeting, even with inflation remaining elevated. The Fed policy is currently restrictive, so they have room to lower rates, either 25 or 50 basis points, to support the employment picture while keeping them restrictive, helping to bring inflation in line.”
The Labor Department’s revisions to prior-month numbers took June’s figure from a net gain of 14,000 to a net loss of 13,000, marking the first time since December 2020 — during the Covid-19 pandemic — that the country recorded a loss. July’s figure, by contrast, was revised slightly upward, from 73,000 to 79,000.
“The August jobs headline number appears to show that the U.S. labor market might be plateauing,” Lyon said. “The addition of 22,000 jobs is actually consistent with the revised three-month average that has been publicly discussed. In my experience there can be dips in the numbers throughout the year without having a negative impact on business.”
“While the headline number is 22,000, remember this is a survey,” Wyatt added. “The count of payroll jobs takes several months as employers, particularly new companies and when companies close, are slow at filing their payroll taxes. When [the Bureau of Labor Statistics] says the number ‘has shown little change since April,’ they are saying that the change in jobs since April is within the margin of error of the survey. This means the economy has added or lost very few jobs since April. The labor market is stagnant. People aren’t quitting, they aren’t getting laid off in large numbers, and they aren’t getting hired in large numbers.”
In the Labor Department report, the unemployment rate moving from 4.2% to 4.3% is described as “little changed.”
“So while the unemployment rate moved from 4.2% to 4.3%, BLS is saying this was not a statistically significant move,” Wyatt said. “With changing immigration policies, it is difficult right now to estimate how many people are leaving or joining the labor force, which makes it hard to know how many jobs each month need to be created to keep the unemployment rate steady.”
The Newport International Boat Show opens next Thursday, there are other September shows in Connecticut and Florida, and the Annapolis Powerboat Show is scheduled for Oct. 2-5. Lyon said talk of an interest rate cut should improve the marine industry’s prospects at these shows.
“Headlines about lowering interest rates usually translates well into consumer confidence in the recreational marine industry,” Lyon said. “In addition, the 10-year Treasury, a benchmark for retail financing, has already been falling ahead of any Fed action. That should be helpful for the fall shows.”
“We still see strong upper- and middle-income consumers, with signs of stress largely confined to younger and lower-income consumers,” Wyatt added. “For older, wealthier consumers with stock portfolios, the S&P is up almost 20% in the past year. Their personal balance sheets are in very good shape.
“Real-time spending data shows that consumer spending is still growing,” he said. “In fact, we saw a pickup in spending in July and August. Spending growth has been stronger in states in the Southeast, like Florida, than in the Northeast and Mid-Atlantic. Our boat and RV dealer clients are reporting that summer sales are tracking a bit stronger than earlier in the year.”
In a mild upside surprise, the government said the labor force participation rate — the measure of the population that is in the workforce — edged up to 62.3%, from 62.2% in July. The rate for people who are in their prime working years (ages 24 to 65) rose to 83.7%.
The economy has been counting on the health care category for continued growth, and it added 31,000 jobs in August, but that number fell 11,000 short of the average gain for the sector during the prior 12 months. Leisure and hospitality businesses added 28,000, and the social assistance category added 16,000 jobs.
Federal government employment fell by 15,000 in August, reflecting the ongoing job-cutting process that the extra-governmental Department of Government Efficiency initiated after the Trump administration took power in January.
More worrying, manufacturing employment fell by 12,000 in August and is down by 78,000 since the year began. Restoring American manufacturing jobs is one of the prime goals of the aggressive trade and tariff policies that President Donald Trump has launched.
The Labor Department said workers’ hourly pay rose by 10 cents, or 0.3%, to $36.53 in August. During the past 12 months, earnings have increased 3.7%, slightly below the 12-month figure from July and at a pace that is still well above the current rate of inflation.
“This is notable for a couple of reasons,” Wyatt said. “First, wages are one reason that labor-intensive services inflation is keeping overall inflation above the Fed’s 2% target. Second, it suggests the labor market is a bit stronger than the job growth number would indicate.”
Ahead of the jobs report, the Labor Department said Wednesday in its monthly Job Openings and Labor Turnover Survey that vacancies nationally fell in July to their lowest level in 10 months, declining by 176,000, to 7.18 million.
“The deterioration highlights the gradual erosion in what has remained a generally healthy labor market through the Fed’s efforts to corral inflation these past few years,” Sarah House, a senior economist at Wells Fargo, told Reuters.
The government also said layoffs rose by a statistically insignificant 12,000, to 1.81 million, and hiring was weak, rising by just 41,000, to 5.31 million.
The number of vacancies per unemployed worker fell to 0.99, down from 1.05 in June. The drop below the 1.0 mark was the first for the measure since April 2021. The economy was in the recovery process from the Covid at that time.
The ADP Research Institute said Thursday in its National Employment Report for August that private-sector employment rose by just 54,000, slightly more than half the increase that the think tank reported in July.
“The year started with strong job growth, but that momentum has been whipsawed by uncertainty,” Nela Richardson, the ADP’s chief economist, said in a statement. “A variety of things could explain the hiring slowdown, including labor shortages, skittish consumers and AI disruptions.”
Annual pay was up by 4.4% for people who stayed in their current jobs and 7.1% for job-changers. Both figures were little changed from July.
The institute said medium-sized companies — employing 50 to 499 people — added 25,000 employees in July. Companies in all other categories added just 29,000.