US job growth was weaker than expected last month, raising concerns that the world’s largest economy is starting to wobble under the weight of higher interest rates.
The Labor Department said employers added 142,000 jobs in August, fewer than the roughly 160,000 analysts had forecast. The department also said job gains in the previous two months were lower than initially estimated.
However, the unemployment rate has fallen again, from 4.3% in July to 4.2%.
The report is one of the most important gauges of the US economy and comes at a crucial time, as voters weigh presidential candidates for the November election and the US central bank debates cutting interest rates for the first time in four years.
Analysts said the latest data gave the Federal Reserve room to cut interest rates again at its meeting this month, but would do little to resolve questions about the direction of the US economy or how large the cut should be.
“It’s rare to have such a decisive number – unfortunately, today’s jobs report doesn’t completely settle the recession debate,” said Seema Shah, global strategist at Principal Asset Management.
Soaring prices in 2022 have prompted the Federal Reserve to raise its key lending rate to 5.3%, its highest level in about 20 years.
Faced with rising costs for mortgages, autos and other debt, the economy has slowed, helping to ease inflationary pressures but adding to market jitters.
With inflation falling to 2.9% in July, the Fed is now under pressure to cut interest rates and prevent further economic downturn.
Although August’s job gains were lower than estimated, they were still higher than July, when the economic downturn sparked concerns and sent stock markets into turmoil for days.
Construction and health care companies led hiring last month, while manufacturers and retailers cut jobs.
The data in Friday’s report was mixed, but contained enough worrying signs for the Fed to cut more aggressively, Ms. Shah said.
“Overall, with inflation pressures contained, there is no reason for the Fed not to be cautious and cut rates early,” she said.
But others argue that the increase is just steady enough to warrant a 0.25 percentage point cut, as markets have long expected – although this could be a sign of more cuts than expected in the coming months.
Paul Ashworth, chief North American economist at Capital Economics, said the Fed’s decision would be “close.”
“The labor market is clearly experiencing significant deterioration,” he said, adding that the latest figures “are still broadly consistent with an economy that is making a soft landing rather than plunging into recession.”
Concerns about the economy are a major issue in the US election.
Polls show a majority of Americans believe the United States is in a recession, despite solid 2.5% growth last year.
Donald Trump claimed the economy was headed for a “crisis,” and his campaign was quick to seize on the latest numbers to attack Vice President Kamala Harris by issuing a press release headlined “Warning lights flash as Kamala’s economy continues to weaken.”
Democrats have defended their record, arguing that the United States has weathered the pandemic and inflation better than many other countries.
They see the downturn as a sign that the economy is returning to more sustainable growth after the post-pandemic boom.
“Although the pace of hiring has slowed, the U.S. labor market continues to produce solid job growth and wage growth has consistently outpaced inflation,” the White House Council of Economic Advisers said in a blog post.
