Markets await latest jobs data amid rapidly cooling labor market

At 8:30 a.m. ET, the Bureau of Labor Statistics will report payrolls data for July. Analysts expect a gain of 185,000, down from 206,000 in June.

But economists will be squarely focused on the unemployment rate, which has now climbed for three months in a row, to 4.1%, its highest level since December 2021.

It was forecast to have remain unchanged — but some economists are increasingly concerned that the lack of hiring will push it even higher.

“Even a few months ago, the labor market seemed fine, the trajectory looked stable,” said Guy Berger, director of economic research at the Burning Glass Institute, a think tank. “Today, things look a bit shakier.”

While Berger doesn’t see an imminent recession, it wouldn’t take much for the gradual downturn to become a more significant one, he said.

The Federal Reserve doesn’t envision that outcome — and in fact is largely in control of it, economists say.

On Wednesday, the Fed announced that it was leaving its key interest rate unchanged at about 5.5% — but at a news conference after the announcement, Fed Chair Jerome Powell said the central bank would most likely cut the rate at its next meeting in September.

By cutting interest rates, the Fed would reduce the cost of borrowing for goods and services, which would result in lower monthly payments for consumers and businesses alike who are subject to variable annual percentage rates.

In turn, demand and hiring are likely to increase throughout the economy.

The Fed therefore believes it can put a floor underneath the labor market that prevents it from deteriorating further, Berger said.

While there is reason to believe it can accomplish that, there is an alternative view that it is already behind the curve and should have cut interest rates by now.

“Historically, deteriorating labor markets generate a self-reinforcing feedback loop,” former New York Federal Reserve President Bill Dudley wrote in a Bloomberg News op-ed last week. “When jobs are harder to find, households trim spending, the economy weakens and businesses reduce investment, which leads to layoffs and further spending cuts.” 

Another worrying sign: The job growth that is occurring has been in an exceptionally narrow range of occupations, like health care and, to a lesser extent, government, particularly at the state and local levels.