Hiring in the United States has significantly slowed this year, with the average number of new jobs added from May to July being the lowest since the 2020 pandemic. Economists predict only a modest increase in August‘s job numbers.
The Wall Street Journal‘s consensus forecast among leading economists anticipates around 75,000 new jobs created last month. This, combined with a projected rise in the unemployment rate to 4.3%, indicates a weakening labor market. The official August jobs report is scheduled for release next Friday.
Federal Reserve Chair Jerome Powell recently hinted at the possibility of lowering interest rates soon, citing the deteriorating labor market. Lower rates are intended to stimulate economic activity and encourage increased hiring.
However, the reliability of recent employment data is questionable. The government’s employment reports have shown a pattern of overestimating job gains. This has led to significant revisions, with previously reported increases being substantially reduced. For instance, the initial figures for June and May were drastically revised downward.
Federal Reserve Governor Chris Waller voiced concerns about the faltering job market earlier this year, a view he reiterated recently. He noted that private-sector job creation was slowing dramatically. Waller was one of two Fed voters who opposed keeping interest rates unchanged in late July.
Powell acknowledged the possibility of significant downward revisions to the government’s estimate of job creation from April 2024 to March 2025. These revisions, expected to be published on September 9, could reduce the previously reported employment growth by as much as 800,000 jobs.
Even before the recent economic shifts, hiring was already slowing. The apparently robust employment gains in 2024 and early 2025 appear to have been inflated. This complicates the Fed‘s task of balancing its dual mandate of maintaining low inflation and high employment.
The Fed is prepared to tolerate inflation above its 2% target to prevent a significant decline in the labor market and a steep rise in unemployment. Powell recently highlighted the increasing downside risks to employment. The upcoming August jobs report will be crucial in informing the Fed‘s future monetary policy decisions.
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