Job market slows significantly, raising economic jitters

American employers reined in their hiring significantly in July, intensifying jitters that the economy is cooling faster than expected.

Payrolls grew by 114,000, the Labor Department reported Friday, the second smallest gain in a 43-month period of consistent job growth. The unemployment rate rose to 4.3%, the highest level since October 2021, when anxiety about the pandemic was still elevated.

The report added to worries that Federal Reserve officials, who have been holding off on cutting interest rates until they see more data that indicates inflation is coming under control, may have waited too long, potentially sending the labor market into a hard-to-arrest downward spiral. Fed policymakers left the benchmark interest rate at 5.3% at their meeting this week but suggested that a rate cut could be on the table at their next gathering, in mid-September.

“I’m not pushing the panic button at this point,” said Robert Frick, corporate economist at the Navy Federal Credit Union. “But it is a cause for concern, and it certainly indicates the Fed is behind the curve in cutting rates.”

Wage growth decelerated in July, with average hourly earnings up 0.2% from the previous month and 3.6% from a year earlier. The number of people working part time who would have preferred full-time employment also increased, while the number of hours worked per week ticked down slightly, both signals that the demand for workers is slackening.

Further underscoring weakness in the report, job growth was concentrated in a handful of sectors, including health care and social assistance, and construction, which has been surprisingly resilient despite high interest rates. Government employment, which had been helping to drive recent job gains, also increased, though at a slower pace than earlier this year.

But many other industries were largely flat or lost employment, including the information sector, which cut 20,000 jobs.

Overall, the private sector added fewer than 100,000 jobs. The total payroll figures for May and June were also revised lower by 29,000 jobs, bringing the labor market’s steady slowdown into sharper focus.

The data — falling far short of the 175,000 jobs forecast — sent stocks skidding, with the S&P 500 declining 1.8% Friday.

Evidence of deeper cracks in the labor market came on top of other economic data this week that suggested the economy was losing momentum. On Thursday, a closely watched monthly indicator on manufacturing showed signs of tempering. A separate labor report Tuesday showed that the rate of hiring in June continued to fall and is now at levels not seen since the onset of the pandemic.

In a statement, President Joe Biden put the slowdown in the job market in the context of an economy returning to a more normal state. “Today’s report shows employment is growing more gradually at a time when inflation has declined significantly,” he said.

And while more restrained than economists had forecast, the Labor Department report Friday had bright spots.

Notably, it said Hurricane Beryl, which made landfall in Texas in July, appeared to have had little impact on overall employment, though some economists said the storm’s effects could become clearer in revisions to the jobs data.

In addition, the labor force participation rate increased slightly, to 62.7%. Among those in their prime working years — 25 to 54 years old — 84% were active in the labor market, the highest level since 2001. The participation rate for prime-age women matched its record of 78.1%, which it first hit in May.

Although the unemployment rate rose to 4.3% from 4.1% a month earlier, the increase was largely driven by growth in the number of people looking for work, which rose by 400,000. And the separate report Tuesday showed that layoffs in June remained low.

“Labor demand is slowing more abruptly than we and the Fed probably expected,” said Kathy Bostjancic, chief economist at Nationwide. What’s not clear, she said, is whether the moderation in demand is “consistent with a soft landing or something harder or bumpier.”

Taken together, the picture that has emerged — at least for now — is of a labor market that is still relatively healthy compared with ordinary times, but that is potentially on a troublesome path. The number of jobs added in July was far below the average of 215,000 over the previous 12 months, the Labor Department said. The unemployment rate has been inching upward for a year.

Job openings have dropped sharply in recently months, with the ratio of openings to unemployed workers falling to 1.2 from a peak in March 2022 of 2 to 1. Fewer workers are quitting, a sign that once-soaring confidence in the ability to find better-paying positions has ebbed.

“It’s like when you play Super Mario Brothers, and you get that star, and you are zooming through everything — that’s what the labor market was like for the last two years,” said Nick Bunker, an economist at the job site Indeed. “But that’s worn off. The labor market is no longer invincible.”

Jennifer Gipfert, the owner and chief executive of TWC Management, a hotel management company with properties in Colorado, Wyoming, Missouri and Iowa, said labor shortages since the pandemic had persisted. “I don’t think I have one property that could say they are fully staffed.”

There are 15 different job openings across her portfolio, which mostly includes limited-service Best Western properties, but applicants fail to show up for interviews. Turnover remains high.

But she has recently had to lower her room rates because she has noticed that consumers are more reluctant to open their wallets — a trend that could be a broader harbinger for more pronounced economic pullback going forward.

“People are a little bit more conscious about their spend,” she said. “Guests aren’t necessarily willing to pay what they were, like when everyone was in their travel frenzy.”

This article originally appeared in The New York Times.

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