Weak summer labor market flashes warning signs for the economy

The U.S. labor market created few jobs in August and shrank earlier in the summer, a first since the pandemic, as the economy’s engine sputters under the weight of President Donald Trump’s policies.

Employers added 22,000 jobs in August, far fewer than expected, the Bureau of Labor Statistics reported Friday morning. The unemployment rate ticked up to 4.3%, the highest since late 2021.

The drop-off capped four months of significantly slower jobs growth, a turning point after years of steady post-pandemic gains. Until now, economists have largely credited the job market’s resilience for keeping the country out of a recession. But with hiring slowing and industries across the economy — including manufacturing, construction, professional and business services, and the government — cutting jobs in August, there are growing concerns that the labor market’s decline could set off broader economic trouble.

“At this point, the job market is at stall speed,” said Claudia Sahm, chief economist at New Century Advisors and a former Federal Reserve economist. “It’s hanging out in a place of very, very slow growth, and that makes the economy vulnerable to a recession.”

Recent updates to jobs numbers, which are revised as new survey responses come in, have pointed to a weaker summer labor market than previously thought. On Friday, new data for June showed a loss of 13,000 jobs that month, the first negative reading since December 2020, in the middle of the coronavirus pandemic.

Overall, employers have added 88,000 jobs in the past three months, roughly one-third of last summer’s count.

The Trump administration has shrugged off the recent slowdown as a temporary blip, saying it expects a resurgence of new jobs and advanced manufacturing as a result of the president’s policies. The White House has long maintained that new tariffs and fewer immigrants will help boost prospects for American workers and businesses.

“The real numbers that I’m talking about … will be in a year from now” when new factories begin opening, Trump said to reporters on Thursday. “ … You’ll see job numbers that are going to be absolutely incredible … like our country has never seen.”

On Friday, following the release of gloomy jobs news, Trump took to social media to lambaste high interest rates that he has argued for months should be lowered, writing, “Jerome ‘Too Late’ Powell should have lowered rates long ago.”

The Federal Reserve has held off on interest rate cuts so far this year, citing increased economic uncertainty from the president’s trade and immigration policies. But mounting signs of a slowing job market have made it all but certain that the central bank will begin slashing borrowing costs later this month.

The three major Wall Street stock exchanges traded up early Friday as investors pinned their hopes on more aggressive interest rate cuts. But stocks soured later in the day, as they grappled with new evidence that the economy could be on the brink of a downturn.

July’s job gains were revised upward slightly to 79,000. Wage growth cooled, with average hourly earnings rising by 3.7% over the past year.

Opportunities for U.S. jobseekers have become increasingly scarce, even though layoffs remain low, as high interest rates have weighed on the economy and employers nationwide pull back on hiring in response to new international trade levies and a crackdown on immigration that has curbed labor supply.

“This jobs report is not good news for the economy,” said Laura Ullrich, director of economic research for North America at Indeed. “This is the slowest labor market we’ve seen in 15 years outside of the pandemic.”

The softening in the labor market coincides with other signs of cooling. The U.S. economy expanded by 1.4% in the first half of the year, but many economists expect that growth to taper off in the coming months. Manufacturing activity has contracted for six months in a row, and Americans are spending less on dining out, hotels and other nice-to-haves. Economists worry that rising unemployment, or simply the fear of a job loss, could cause families to pull back even more, adding further strain to the economy.

In June, health care and social assistance continued to lead job gains, adding a combined 47,000 positions, reflecting demand from aging baby boomers. Leisure and hospitality payrolls rose by 28,000 positions.

But nearly all other sectors lost jobs or stalled. Manufacturing and wholesale trade each lost 12,000 positions, while construction shed 7,000 positions, reflecting the impact of tariffs.

“Corporations are having to wrestle with the impact of the tariffs, though it is industry-specific,” said Eric Teal, chief investment officer at Comerica Wealth Management. “That’s resulted in lower [profit] margins, which could slow down job creation.”

White-collar industries continued to cut jobs in August. The unemployment rate for recent college graduates rose to 9.3% in August, up from 5.4% in January, according to Labor Department data.

Meanwhile, the federal government, facing cuts from the Trump administration, lost 15,000 positions in August and has shed nearly 100,000 jobs since January. The job cuts could grow this fall as many civil servants took a resignation package that pays them through September.

Friday’s data offered ammunition for the Fed to cut interest rates in mid-September for the first time since December, as was widely anticipated. Futures market investors now expect the Fed to cut rates at each of its next three meetings — in September, October and December — as confidence in the labor market wanes. That would bring the Fed’s short-term rates down to a range of 3.5 to 3.75 by the end of the year.

Fed Chair Jerome H. Powell said during a speech last month in Jackson Hole, Wyoming, that the weaker labor market may warrant rate cuts. He also noted that the labor market is in a “curious kind of balance” as labor supply and demand have softened in tandem, amid declining levels of immigration.

In recent years, economists have said that U.S. employers need to add about 100,000 jobs each month to keep up with population growth. But the “break-even” rate needed to keep the unemployment rate constant may be falling closer to 50,000, as the Trump administration cracks down on unauthorized immigration and moves to strip millions of immigrants of their legal status.

“We’re not seeing a collapse, but there’s a clear softening that will likely continue,” said Lydia Boussour, senior economist at EY-Parthenon, who expects the unemployment rate to edge up to 4.7% by the end of the year.

The previous jobs report, from July, had shown downward revisions of 258,000 from May and June, prompting Trump last month to fire the head of the BLS, accusing her, without evidence, of doctoring jobs data.

Large revisions are more likely when there’s a discernible change in the labor market. “People are not going to fill out surveys right away if the ground is shifting under them,” Sahm said.

The labor market is showing other signs of weakness, too. New filings for unemployment benefits rose last week to the highest level since June, according to the Labor Department. Unemployment rates for African Americans have also climbed sharply in recent months. Plus, the number of workers who have been unemployed long term — for 27 weeks or longer — climbed to 1.93 million in August, the highest level since late 2021.

“The labor market is in a somewhat precarious state and is very vulnerable to a downturn,” said Luke Tilley, chief economist at Wilmington Trust, noting that the economy could shrink and financial markets could fall even if job creation continues at a break-even pace. “If we fall to 50,000 jobs per month as a new normal, I don’t think that we’d be able to achieve the kind of economic growth numbers and revenue that has been priced into the market.”

Leah Bailey, 26, graduated from college in 2023 and has struggled to find a job in human resources, recruitment or any fields relevant to her bachelor’s degree in psychology and business administration. Bailey, who lives in the Atlanta area, has strung together jobs in retail, temporary services and customer service while she hunts for a better-paying job that is relevant to her degree. During the past four months, she has applied to around 200 jobs but hasn’t received an offer, she said.

“It feels like I was lied to as a child when they said if you got a degree, you’d probably have a job,” Bailey said. “I feel like people who went and got a job right after high school probably have a leg up on me now.”

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• Andrew Ackerman contributed.