US employment report shows employment has shifted into a downward gear

The situation on the labour market seems to remain stable, with employers’ willingness to hire slightly exceeding the number of workers looking for work.

That’s the picture emerging from the August employment report released Friday, which provides evidence that while the labor market is weaker than it has been in years, the picture remains favorable: Wages are still rising and Americans are still eager to work.

“This report does not indicate that we are taking another step toward recession, but we do see further signs of cooling,” said Sam Kuhn, an economist at recruiting software company Appcast. “We are closer to the labor market of 2019 than to the labor market of 2010 or 2011.”

Employers added 142,000 positions last month, the Labor Department said. That was slightly less than forecast, putting the three-month average at 116,000 positions after the two previous summer months were revised down significantly. The monthly average for the year to June was 220,000, although that number is expected to decline when annual revisions are finalized next year.

The unemployment rate fell slightly to 4.2%, allaying concerns that a sharp increase had followed a rise to 4.3% in July, most likely due to temporary weather-related layoffs.

Other signs of stabilization included a lengthening of the average workweek to 34.3 hours and a 0.4% increase in wages in the month – slightly more than economists had expected but not enough to significantly increase inflation.

The data is unlikely to send a clear signal to the Federal Reserve, which is considering how quickly it will begin cutting interest rates later this month. Investors are currently expecting a quarter-point cut, but it could be more if Fed officials believe the labor market is deteriorating quickly.

Stocks and bond yields fell throughout the day as investors digested mixed reports.

Other indicators remain strong. The economy grew by a 3% annualized rate in the second quarter, after adjusting for inflation, an acceleration from the first quarter. Some indicators of economic confidence, such as the University of Michigan’s consumer sentiment index, are recovering from the deep slumps of the past few years. A disproportionately large number of jobs have been added since the pandemic in relatively high-paying industries, the Federal Reserve Bank of Cleveland said.

The strength of the labour market was driven by a large number of people starting to look for work, particularly women aged 25-54, who reached an all-time high of 78.4% in labour force participation. This was despite a difficult childcare market, where employment has been falling since May.

Employers have not begun laying off workers in large numbers; initial unemployment claims have fallen in recent months, and the layoff rate remains lower than usual. The number of people working part-time because they can’t find more hours, while rising, remains within historical norms.

But companies haven’t posted many job openings, and workers have been reluctant to leave for new opportunities. The job vacancy rate has fallen back to pre-pandemic levels after rising to record levels in 2022, and the number of job openings is about the same as the number of people looking for work.

“It does look like a freeze on the hiring side, but companies aren’t necessarily shedding workers,” said Thomas Ryan, an economist at Capital Economics. “The typical recession dynamics, where a few people get laid off and things get worse, don’t seem to be happening.”

This is a good situation for people who are already working, but a difficult one for those who have just finished high school or college and are trying to find a job for the first time.

One of those left behind is Justin Burgess, 44, who works at a pizza restaurant in Seattle. The pandemic put him out of work for several months, but federal relief payments gave him enough money to invest in the stock market for the first time and pay off credit-card debt.

Now, getting by has become harder, as the rent on the house he shares with friends has gone up, and he’s spent what little savings he had. Even as Seattle’s minimum wage has gone up—now $17.25 an hour for smaller, tipped jobs like Burgess’s—he doesn’t feel like he’s seen much of a benefit.

“People are starting to resent the whole tip system, so we’re making less in tips, and I’m still living paycheck to paycheck,” Burgess said. His management recently told employees that 2.5% would be deducted from tips to cover credit card swipe fees.

Food and beverage establishments like the one where Burgess works added about 30,000 jobs in August, but the industry has barely surpassed pre-pandemic levels after a slow recovery.

The only other sectors to add much employment were health care and other care categories, which added 44,000 jobs, and construction, which added 34,000 jobs. It was another month of surprisingly strong growth after two years of high-interest-rate cycles that made it difficult to finance new projects.

The construction was supported by federal aid packages for airports, transportation infrastructure and clean energy projects. Rebecca Fountain, who runs a Las Vegas construction company, has won some of those government bids. The number of new opportunities has left Fountain and her industry peers baffled.

“We see a slowdown coming, and yet we have a lot of work to do right now,” she said. “We’re not sure what to think beyond, ‘Get the contracts and start building as soon as possible so they can’t cancel them.’”

Like many other employers in Las Vegas, Fountain uses workers supplied by the local union, which means she doesn’t have to recruit and pays a flat hourly rate. But in recent months, the recruiting office has been overwhelmed, she said, and sometimes sends out people with less experience than she’d like.

The findings echo surveys by Associated General Contractors, an industry group, and Arcoro, a construction software company, that found unionized companies now have as much difficulty filling positions as nonunion companies — especially in high-skill positions.

The wave of immigrants who have arrived across the southern border in recent years may be helping to satisfy the appetite for workers, as most of them obtain work permits within six months. Adam Kamins, senior director at Moody’s Analytics, notes that migrants have found their way into big cities and agricultural areas like California’s Central Valley, allowing production to continue that might otherwise have been halted.

“I think they generally go to places where there’s a greater need for workers,” Kamins said. “That influx of new workers into the economy allowed us to get inflation under control, but do it in a way that wasn’t as painful as it might have been under other circumstances.”

One notable weak spot is manufacturing, which has been mostly stagnant since late 2022 and shrank by 24,000 jobs in August. In addition to federally subsidized investment in battery and semiconductor plants that generally have not started operating, high interest rates have weighed on new investment, while a strong dollar has depressed exports.

The upcoming election is also causing companies to put off major decisions, considering the big policy changes that could come if the White House or Congress changes hands, said Timothy Fiore, chairman of the Manufacturing Business Committee at the Institute for Supply Management.

“We have almost exhausted our order book,” Fiore said, “and due to the lack of new orders, companies are withdrawing their production plans.”

This article originally appeared in The New York Times.