U.S. job growth was weaker than expected last month, raising concerns that the world’s largest economy is starting to stumble under the weight of rising interest rates.
The Labor Department said payrolls rose by 142,000 in August, below the roughly 160,000 that analysts had expected, and that job gains over the past two months had also fallen short of earlier expectations.
However, the unemployment rate fell to 4.2% from 4.3% in July.
The report, one of the most important indicators for the U.S. economy, comes at a critical time as voters consider candidates ahead of November’s presidential election and the U.S. central bank debates cutting interest rates for the first time in four years.
Analysts said the latest data maintains the Fed’s forecast of a rate cut when it meets this month, but will do little to resolve questions about the direction of the U.S. economy or how big the cut should be.
“We rarely see numbers this sizeable and unfortunately today’s jobs report does not fully settle the recession debate,” said Seema Shah, chief global strategist at Principal Asset Management.
Rising prices in 2022 prompted the Federal Reserve to raise its key lending rate to 5.3%, the highest in nearly two decades.
The slowdown in the economy, faced with rising borrowing costs for homes, autos and other debt, helped ease pressures that had been fuelling inflation but increased market anxiety.
With inflation easing, falling to 2.9% in July, the Fed is under pressure to cut interest rates to head off a further economic slowdown.
While August’s job gains were weaker than expected, they were still higher than in July, when a slowing economic growth sparked fears and led to several days of turmoil in the stock market.
Construction and health care companies led the hiring surge last month, while manufacturing and retail cut jobs.
Shah said the data in Friday’s report was mixed but contained enough worrying evidence to suggest the Fed should cut rates further.
“Overall, with inflationary pressures subdued, there is no reason for the Fed not to be cautious and bring forward rate cuts,” he said.
But some say rates are stable enough to justify a quarter-percentage-point cut, as has long been expected in the market, though this could signal more cuts than expected in the coming months.
Paul Ashworth, chief North American economist at Capital Economics, said the Fed’s decision will be “close.”
“The labor market is clearly experiencing a significant slowdown,” he said, adding that the latest figures “remain consistent with the economy experiencing a soft landing, rather than falling into a recession overall.”
Concerns about the economy have become a key issue in the US election.
Polls suggest that a majority of Americans believe the U.S. is already in a recession, despite a robust 2.5 percent growth last year.
Donald Trump has claimed the economy is heading for a “collapse,” and his campaign was quick to use the latest statistics to attack Vice President Kamala Harris, issuing a press release headlined “Warning Lights Come On as Kamala’s Economy Continues to Weaken.”
Democrats have defended their record, arguing the U.S. has weathered the pandemic and inflation better than many other countries.
They say the slowdown is a sign that the economy is returning to a more sustainable pace of growth after a post-pandemic boom.
“Despite slowing hiring, the U.S. labor market continues to produce strong job growth and wage increases that have consistently outpaced inflation,” the White House Council of Economic Advisers said in a blog post.