US labor market added just 142,000 jobs in August, weaker than expected

The American labor market added 142,000 jobs in August — a relatively weak number that paves the way for the Federal Reserve to finally start cutting interest rates when it meets later this month.

The latest jobs figures didn’t add up to a clear message for Wall Street. Last month’s number fell short of the 161,000 jobs economists had expected, and the two previous months were revised lower by a combined 86,000 positions.

Still, August’s highly anticipated reading was better than July’s revised tally of 89,000 — the smallest since the pandemic — and the unemployment rate ticked lower to 4.2%.

“The labor market is weakening,” said Eugenio Aleman, chief economist at Raymond James Financial. “It is not falling apart, but it is weakening.”

The Dow Jones Industrial Average lost more than 400 points on uncertainty around the labor market and the prospects for rate cuts. The S&P 500 fell 1.7% – ending its worst week in a year.

The Fed is set to meet on Sept. 17 and 18. Traders on Friday raised their bets to about 50-50 that the central bank will lower its benchmark lending rate by half a percentage point, versus a more typical, quarter-point cut.

Christopher Waller, one of seven members of the Fed’s board of governors, said Friday that the latest jobs data “indicates to me that the labor market is continuing to soften but not deteriorate, and this judgment is important to our upcoming decision.”

Waller said that the most likely scenario is for the Fed to issue a series of modest rate cuts, though he added he would be open to considering an accelerated timetable if fresh data indicated a further cooling of the labor market.

When inflation was soaring in 2022 and 2023, the Fed hiked rates by 50 and 75 basis points at a time until the benchmark rate reached around 5.3%.

“I was a big advocate of front-loading rate hikes when inflation accelerated in 2022, and I will be an advocate of front-loading rate cuts if that is appropriate,” Waller said.

August’s job gains were concentrated in just a few industries, with health care adding 44,000 jobs, restaurants, hotels and entertainment companies gaining 46,000, and construction 34,000.

Hiring at hospitality venues could reflect ongoing gains in consumer spending, which rose last month even after adjusting for inflation. Manufacturers and retailers cut jobs in August.

Recent economic data has been mixed. The Fed’s Beige Book, a collection of anecdotes from the 12 regional Fed banks, reported that many employers appeared to have become pickier about whom they hired in July and August.

A survey by the Conference Board in August found that the proportion of Americans who think jobs are hard to find has been rising, a trend that has often correlated with a higher unemployment rate.

At the same time, consumer spending, the principal driver of economic growth in the United States, rose at a healthy pace in July. The economy grew at a solid 3% annual pace in the April-June quarter.

Fed Chair Jerome Powell has made clear that he doesn’t want to see the job market weaken further.

Substantial rate cuts by the Fed could spur some companies to start hiring more quickly, some labor market experts say.

Reductions in the Fed’s benchmark rate will eventually lead to lower borrowing costs for a range of consumer and business loans, including mortgages, auto loans and credit cards.

“Everyone’s in a bit of a holding pattern,” said Becky Frankiewicz, president of North America at staffing giant Manpower.

“Everyone’s watching that mid-September meeting, to free up and start spending.”

With Post Wires