US extends hiring cooldown as unemployment hits highest since late 2021

WASHINGTON – The US jobs market cooled much more than expected in July, with the unemployment rate reaching its highest since late 2021, government data showed on Aug 2, paving the way towards post-pandemic interest rate cuts.

The world’s biggest economy added 114,000 jobs in July, down from June’s revised 179,000 figure, said the Department of Labour.

The jobless rate rose to 4.3 per cent, the highest level since October 2021, according to government data.

The report brings the Federal Reserve a step closer to its first rate cut after the Covid-19 pandemic – with the economy cooling and inflation moving towards officials’ 2 per cent target.

While analysts have raised concern over the US economy triggering an early recession indicator, Oxford Economics’ chief US economist Ryan Sweet believes that “this cycle is unique”.

In recent times, unemployment has edged up as more people entered the labour force. This marks less of a risk that a vicious circle of rising jobless rates leads to income loss – and further employment losses, he previously told AFP.

In July, average hourly earnings rose less than analysts expected, by 0.2 per cent to US$35.07 (S$47), the Labour Department report said.

On a year-on-year basis, wage growth slowed to a rate last seen in 2020.

Waning momentum

“Employment continued to trend up in healthcare, in construction, and in transportation and warehousing, while information lost jobs,” said the Labour Department.

It added that government employment, which slowed in recent months, was little changed in July.

“There are signs that momentum is waning,” said KPMG chief economist Diane Swonk about public-sector hiring in a recent note.

“Revenues at the state and local levels have fallen short of budgets this fiscal year, while Covid-era subsidies have lapsed,” she added.

Apart from a downward revision to June’s hiring figures, job growth in May was also slightly lower than initially estimated, Labour Department data showed.

The latest report will likely bolster the Fed’s confidence to begin cutting rates in September.

Although the central bank has been focused on reining in runaway inflation in recent years, Fed chairman Jerome Powell previously said that policymakers have been monitoring the labour market too.

An unexpected weakening in the job market could be a reason for a Fed policy response, he noted.

In a separate statement on Aug 2, top Democrat on the House Budget Committee Brendan Boyle said that while the US workforce is “strong”, it is also time for the Fed to begin lowering rates. AFP