A weaker-than-expected jobs report released Friday fueled concerns about a possible economic recession and calls for lower interest rates.
Employers hired 114,000 workers last month, well below the 185,000 jobs economists had expected, according to data from the U.S. Bureau of Labor Statistics. The unemployment rate climbed to 4.3%, its highest level since October 2021.
Hiring in July marked a sharp slowdown from the 206,000 jobs created the previous month, and the new data is well below the monthly average for the past year.
The slowing labor market points to a possible economic slowdown and strengthens the case for an interest rate cut at the Federal Reserve’s next meeting in September, analysts told ABC News. The central bank may have been wrong to keep interest rates on hold at its meeting this week, some analysts added.
“The labor market is in a perilous situation,” Nick Bunker, director of North America economic research at Indeed Hiring Lab, said in a statement to ABC News. “It’s unclear what will change and save the market from its current trajectory.”
The report released Friday indicated that the labor market is cooling faster than previously thought, rekindling fears of a recession, some analysts said.
The unemployment rate has climbed from 3.7% to 4.3% this year. That trend has triggered a recession indicator known as the “Sahm rule,” which states that a 0.5 percentage point increase in the unemployment rate over a 12-month period typically precedes a recession.
Major stock indexes fell in early trading Friday in response to the jobs data.
“The July jobs report came out with a bang,” Mark Hamrick, senior economic analyst at Bankrate, told ABC News.
In an article on X regarding the jobs data, prominent economist and New York Times columnist Paul Krugman described the economy as “pre-recessionary,” although he indicated that the economy will likely avoid a slowdown due to some technical reasons for the high unemployment rate.
However, citing the need to revive job growth, Krugman called on the Fed to “taper, tape, tape.”
The new jobs data extends a months-long stretch of economic performance marked by key conditions for a rate cut: falling inflation and slowing job creation.
Price growth has slowed significantly from a peak of more than 9%, even though inflation remains a full percentage point above the Fed’s 2% target rate. The fall in prices in June from the previous month marked a major sign of progress in slowing inflation.
Federal Reserve Chairman Jerome Powell holds a news conference following a two-day meeting of the Federal Open Market Committee on interest rate policy in Washington, DC, on July 31, 2024.
Kevin Mohatt/Reuters, ARCHIVES
In recent months, Fed Chairman Jerome Powell has emphasized the central bank’s responsibility to maintain a robust labor market, in addition to its goal of controlling inflation.
“For a long time, since inflation came along, it made sense to focus primarily on inflation. But now that inflation has come down and the labor market has actually cooled, we’re going to look at both mandates,” Powell said last month at a meeting of the Economic Club of Washington, D.C.
On Wednesday, Powell said the Fed could cut interest rates at its next meeting in September, although he said the central bank would like to see further evidence that inflation is falling.
“We have not made any decisions about future meetings, including the September meeting,” Powell said at a news conference in Washington, DC. “We are getting closer to the point where we will cut our policy rate, but we are not quite there yet.”
In recent months, observers have expressed optimism about the possibility of a “soft landing,” in which inflation returns to normal levels while the economy avoids a recession. However, the jobs report appears to have dampened some of that enthusiasm.
“The soft landing of the U.S. labor market is in jeopardy,” Bunker said.
