U.S. Unemployment Rises to 4.3% Amid Broader Economic Slowdown

The U.S. unemployment rate rose to 4.3% in July, and hiring slowed, suggesting a broader downturn in what had been a solid U.S. economy. According to the Bureau of Labor Statistics, the U.S. added 114,000 jobs in July, down from 206,000 in June, falling short of expectations. Economists had anticipated that the unemployment rate would remain steady at June’s 4.1%.

This report may heighten concerns among some economists that the Federal Reserve delayed cutting interest rates in its efforts to combat inflation. Fed Chair Jay Powell indicated earlier this week that the first rate cut of the post-pandemic period might occur in September, despite signals of a rapidly cooling labor market.

Seema Shah, chief global strategist at Principal Asset Management, expressed concern, saying, “The labor market’s slowdown is becoming clearer.” She noted that job gains have dropped below the 150,000 mark, typically associated with a solid economy, and suggested a September rate cut is likely.

Despite some positive indicators, such as wage gains outpacing inflation and an increased labor force participation rate, the report showed limited job growth outside of sectors like healthcare, construction, and some transportation and warehousing roles. Manufacturing saw a modest increase of 1,000 jobs, while professional and business services saw a decline of 1,000 positions.

Guy Berger, director of economic research at the Burning Glass Institute, remarked that the labor market’s trajectory now appears less stable than a few months ago. While he doesn’t foresee an imminent recession, he acknowledged that the situation could worsen.

The Federal Reserve is largely seen as controlling the outcome, with many economists advocating for a rate cut to stimulate demand and hiring. However, concerns persist about whether the Fed has already delayed action for too long.

Former New York Federal Reserve President Bill Dudley warned in a Bloomberg News op-ed that deteriorating labor markets could create a self-reinforcing feedback loop, where job losses lead to reduced household spending and further economic weakening.

The job growth that is occurring has been concentrated in a narrow range of occupations, particularly in health care and government roles at the state and local levels. Julia Pollak, chief economist at ZipRecruiter, highlighted a sharp decline in private-sector labor market growth, with recent months averaging only 58,000 new jobs outside healthcare.

Pollak also noted that leisure and hospitality jobs have declined recently, adding pressure on workers seeking employment. She observed a growing divide in consumer behavior, with high-interest rates impacting business growth and low-income consumers cutting back.

Berger suggested that while further deterioration in the labor market might not occur, sluggish growth is likely to persist. He emphasized that the prospect of a rapid rebound is unlikely, predicting a gradual and prolonged recovery period.