U.S. job market slows but it’s not yet a ‘three-alarm fire’: economist

The U.S. job market is cooling at an alarming rate, but economists believe it has not yet reached a level that is alarming, at least yet.

They are concerned about the momentum of key labor market indicators such as the unemployment rate, job growth and hiring.

Such barometers, which were at record highs about a year ago, have gradually weakened as the Federal Reserve raises interest rates to cool the economy and lower inflation.

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Economists say if the labor market continues to slow at its current pace, it could lead to a recession.

“We're still on a trajectory where it's not a Category 3 fire right now,” said Nick Bunker, director of North American economic research at job site Indeed.

But he said that if the decline does not level off soon, the economy may not achieve a soft landing soon: “We will land, but we will land with a crash.”

employer 142,000 new jobs created August data released Friday by the U.S. Bureau of Labor Statistics came in below expectations.

The good news: This number is up from the 89,000 jobs added in July. The unemployment rate also fell slightly, to 4.2% from 4.3% in July.

However, Ernie Tedeschi, economic director of the Yale University Budget Lab and former chief economist of the White House Council of Economic Advisers in the Biden administration, said that multiple indicators point to “slowing momentum” in the overall labor market.

He said the current levels of job growth and unemployment “are good for the U.S. economy for several more months.” “The problem is, other data doesn't give us the confidence to stay there.”

For example, average employment growth There were 116,000 in the past three months; the average in the three months before a year was 211,000. this unemployment rate It has also risen steadily from 3.4% in April 2023.

Employers also recruit That’s the slowest growth rate since 2014, according to the Labor Department data Released earlier this week.

Hiring is also not broad-based: Private sector job growth outside of health care and social assistance has been “unusually slow,” with employment averaging about 39,000 over the past three months, compared with 79,000 and 137,000 last year. . Economist Julia Pollak said from 2015 to 2019.

so do workers quit smoking Their jobs are at their lowest levels since 2018, while Job vacancies It is at its lowest level since January 2021.

Bunker said job search levels among unemployed workers are about where they were in 2017 and “continue to decline.” explain.

“What is very consistent is that the strong labor market momentum we saw in 2022 and 2023 has slowed significantly,” Tedeschi said.

Overall, the data points “are not necessarily concerning or at recessionary levels,” he added. “(But) they are getting weaker. They could be a precursor to a recession.”

Still, economists say there is still some room for optimism.

Tedeschi said permanent layoffs have historically been “a harbinger of recession,” but that hasn't really changed.

federal data Unemployment Insurance Claims and layoff rate For example, show that employers are retaining their workers.

Economists say the recent gradual rise in unemployment is largely not caused by layoffs. There's a “good” reason for this: a massive increase in labor supply. In other words, more Americans are entering the job market and looking for work; they are considered unemployed until they find a job.

“Once we started laying off people, it was game over and we were in a recession,” Tedeschi said. “And that just didn't happen.”

Still, the job search has become more challenging for job seekers than in the past, Bunker said.

Federal Reserve officials are expected to begin cutting interest rates at their upcoming meeting this month, which would ease pressure on the economy.

For example, lower borrowing costs may spur consumers to buy homes and cars, and businesses in turn to invest more and hire more workers.

Economists say the relief may not be immediate but could take months for the economy to return to normal.

Overall, though, the current picture “remains consistent with the economy experiencing a soft landing rather than a recession,” Paul Ashworth, chief North America economist at Capital Economics, wrote in a note on Friday.