August 2024 Jobs Report: The Summer Slowdown Continues

The BLS estimated that the US economy added 142,000 jobs in August, and the unemployment rate ticked down slightly from 4.3% to 4.2%. This report is far from a worst-case-scenario many had feared, but does tell a consistent story of a labor market that is moving from a phase of post-pandemic normalization into outright weakness. 

1. Job growth has slowed sharply over the past quarter

Today’s data first demonstrated that the weakness in last month’s report was not a fluke. Indeed, the estimate for employment growth in July was revised down a further 25,000 to just 89,000 jobs added. Taken with the revision for June, total job growth over the past two months was 86,000 lower than previously estimated. Over the past three months, we have seen a substantial slowdown in job growth compared to even just the beginning of 2024: in January, the three-month moving average of employment growth was 243,000 – now that average sits at just 116,000. For reference, the US economy averaged 190,000 jobs added per month pre-pandemic (over 2015 to 2019).

2. The labor market weakening is broad-based, with many industries losing jobs

Second, over the past several months, labor market weakness has spread to more industries and the signs of growth are increasingly restricted to a small number of sectors. In August, just two industries, Health Care and Construction accounted for more than half (80,000) of the 142,000 net increase in jobs. Moreover, for the first time since the onset of the pandemic, more industries have shed jobs over the past three months than have increased employment (from the BLS Employment Diffusion Index).

3. Job losers are having a more difficult time finding jobs

One bright spot in today’s report was that the unemployment rate ticked down from 4.3% to 4.2%, but this drop was almost entirely because the idiosyncratic factor driving last month’s uptick (a weather-related increase in workers on temporary layoff) fell back to normal levels. More importantly, over the past three months an increasing number of people are moving into the ranks of the unemployed when they enter the labor force (rather than immediately finding a job) and when they permanently lose their job (rather than finding new work). The US has avoided a more severe slowdown in large part because, when workers have lost their job, they have had a relatively easy time finding new work – but that has become increasingly difficult in recent months.

What it Means

The slowdown in the top-line job growth numbers, the broad-based weakening across most sectors, and the flow of workers from job loss into unemployment are all signs that the job market is significantly weaker than even just a few months ago – and is skirting the line between normalization and deterioration. All eyes will now be on whether the Federal Reserve lowers interest rates by 25 or 50 basis points later this month. What happens at the September meeting is much less important than where interest rates ultimately end up over the longer-term, but the underlying weakness in today’s report boosts the case for an aggressive start to the Fed’s rate-cutting cycle.