America just got another slate of lousy job market news

By Alicia Wallace, CNN

(CNN) — Warning signs have been flashing for months that the US job market has been losing steam. That became starkly clearer in July, and the early data for August isn’t looking much better.

New metrics released Thursday showed that first-time claims for unemployment benefits rose to an 11-week high; that private-sector businesses sharply reined in their hiring last month; and that last month was the worst August for layoff announcements since the Great Recession.

“The labor market is showing signs of cracking,” Heather Long, Navy Federal Credit Union senior economist, wrote Thursday. “It’s not a red siren alarm yet, but the signs keep growing that businesses are starting to cut workers.”

The latest data tees up an August jobs report that, when released Friday morning, is expected to show another month of tepid job gains. Economists have forecast that the economy added 80,000 jobs last month, which would be a slight increase from the slower-than-expected 73,000 net gain in July.

A messy July

The July jobs report, and the downward revisions that came along with it, hit like a ton of bricks and triggered some extracurricular drama in the process.

The month’s 73,000 estimated jobs added were well below the 115,000 net gain expected and half the size of June’s preliminary tally. As for May and June’s gains, those were drastically slashed by a combined quarter of a million jobs.

Following those revisions, the three-month average was just 35,000 jobs added. Outside of the massive job losses during the onset of the pandemic, that’s the slowest pace of job creation seen in nearly 15 years, Bureau of Labor Statistics data shows.

When all was said and done, President Donald Trump fired BLS Commissioner Erika McEntarfer, claiming, without evidence, that she manipulated the numbers for “political purposes.” (Revisions are a “feature, not a bug” of economic data, and there are explanations for what happened in May and June — more on that below).

Trump’s nominee for the BLS commissioner, Heritage Foundation economist E.J. Antoni, stirred plenty of controversy and drummed up fears of political influence on critical economic data.

Friday’s jobs report for August is expected to provide some additional and much-needed clarity on the health of the nation’s labor market, the bedrock for the US consumer and the economy.

A shrinking labor force

A consensus of economists’ estimates put August’s expected payroll gains at 80,000, according to FactSet.

FactSet estimates are also showing that the unemployment rate is expected to hold steady at 4.2%.

“You’re definitely seeing a slowing in the labor market, a pretty marked slowing,” Dan North, Allianz Trade’s senior economist for North America, told CNN in an interview.

Through July, the US economy has added about 85,300 jobs per month. For the comparable periods in 2024, 2023 and 2022, that tally was roughly 153,300, 240,400, and 466,850, respectively.

Slower job growth has long been expected. The nation’s labor market was coming down from pandemic-era hiring highs and supposed to be settling into a new normal.

However, it remains to be seen whether the current low-hire, low-fire environment that has left workers and jobseekers with few opportunities is a concerning stalling-out or something more structural entirely.

“The slight uptick in July’s still-low unemployment rate suggests that labor supply has slowed nearly in tandem with labor demand, keeping the overall market — as [Federal Reserve Chair Jerome] Powell described in his Jackson Hole speech — in a ‘curious kind of balance,’” Seema Shah, chief global strategist at Principal Asset Management, wrote in a Wednesday note.

“As such, the disappointing payroll figures may not signal outright labor market deterioration but rather reflect an economy that requires fewer new jobs to maintain stable employment levels,” she added.

Labor supply has been shrinking in part because of an aging workforce as well as reduced immigration flows. At the same time, the Trump administration’s whipsaw tariff policy has injected substantial uncertainty into the economy, paralyzing some businesses’ hiring plans in the process.

“Employers have been tightening their purse strings to cope with uncertainty in the economic outlook,” Elizabeth Renter, senior economist at NerdWallet, wrote Wednesday. “This means holding back on hiring they might otherwise do. Fortunately, thus far, it’s also meant holding back on layoffs.”

What this week’s data is showing so far

New data Thursday provided some additional evidence that a broad-based slowdown in hiring is sweeping the US labor market.

Payroll company ADP’s latest monthly employment report showed that US private-sector businesses added an estimated 54,000 jobs in August, nearly half the 106,000-job gain reported for July.

“The year started with strong job growth, but that momentum has been whipsawed by uncertainty,” Nela Richardson, chief economist at ADP, said in a statement. “A variety of things could explain the hiring slowdown, including labor shortages, skittish consumers, and AI disruptions.”

The lion’s share of the gains came from leisure and hospitality businesses, which added an estimated 50,000 jobs last month, ADP said. Construction and professional and business services also added jobs (at 16,000 and 15,000, respectively). Jobs were shed in industries such as trade, transportation and utilities; education and health services; and manufacturing.

Still, layoff activity hasn’t been drastically accelerating.

Separate data released Thursday showed that there were an estimated 237,000 first-time claims for unemployment benefits filed in the week that ended August 30, an increase of 8,000 from the week before, according to Department of Labor data.

The weekly jobless claims report is the highest-frequency federal data that’s the closest proxy for layoff activity.

First-time claims for unemployment insurance have remained in a narrow range since mid-June and are still running below where they were at last year, painting a “reasonably optimistic picture” of the labor market, Abiel Reinhart, JPMorgan economist, wrote last week.

The continuing claims data, however, has continued to bump up against nearly four-year highs, indicating that it has not been easy for unemployed people to find work.

That was reinforced earlier this week with the latest Job Openings and Labor Turnover Survey data. At the end of July, for the first time in more than four years, there were fewer job openings than there were job seekers, BLS data showed.

At the same time, the July JOLTS report showed that hires, quits and layoffs didn’t budge much at all.

Still, there are some indications that a pickup in layoff activity could come in the months ahead.

In August, US-based employers announced plans for 85,979 layoffs, an increase from the 62,075 announced in July, according to Challenger, Gray & Christmas’ latest job cut tracking report released Thursday.

By Challenger’s count, it was the worst August since the Great Recession for layoff announcements.

“After the impact of [Department of Government Efficiency cuts] on the federal government, employers are citing economic and market factors as the driver of layoffs,” Andrew Challenger, senior vice president of Challenger, Gray & Christmas, wrote in a statement. “We’ve also seen a spike in cuts due to operation or store closings and bankruptcies this year compared to last.”

Datapoints to watch in Friday’s report

Revisions: Economic data is frequently revised — especially as more comprehensive information becomes readily available — to provide a clearer, more accurate picture of the dynamics in play.

And, in times of economic transitions, revisions are usually more outsized in one way or other, William Beach, the BLS commissioner during Trump’s first term, told CNN recently.

“We have seen this pattern before of fairly large downward revisions when the economy is slowing, fairly large upward revisions when the economy is growing again,” he said.

One part of the substantial downward revisions in May and June are likely due to small businesses responding late to the survey “because they’re just too busy trying to stay alive,” he said.

A larger part of the revision was because of seasonal adjustment factors that had to be changed because of a larger-than-typical drop-off in state and local education hiring, he added.

As for July, there is a weak correlation between a current month’s revision and prior months, suggesting that another downward revision is likely in store, wrote Dean Baker, senior economist at the Center for Economic and Policy Research.

Narrow job growth: The US labor market has become increasingly reliant upon a dwindling number of industries to drive job growth. In July, the nation’s jobs gains were entirely driven by the health care and social assistance industry.

That’s expected to be the case in August, Greg Daco, chief economist at EY-Parthenon, wrote in a note earlier this week.

“Most other sectors (outside health care and, to a lesser extent, leisure and hospitality) are likely to see muted or even negative employment trends,” Daco wrote. “Specifically, we anticipate notable payroll declines in professional and business services as well as retail trade and manufacturing, with little to no change in information and transportation employment.”

Black unemployment: During the past two months, the unemployment rate for Black workers has risen considerably higher, jumping from 6% to 6.8% in June and then to 7.2% in July — a nearly four-year high.

Demographic data in the household survey (one of two that compose the monthly jobs report) can be highly volatile because of smaller sample sizes; however, if it moves higher in August, “it will mean we have a serious deterioration in the labor market situation for Black workers in just a half year,” CEPR’s Baker noted.

A rise in the Black unemployment rate is often considered the “canary in the coal mine,” foretelling a broader-scale job market slowdown.

Wage growth: Annual growth in average hourly earnings is expected to slow to 3.7% from 3.9% in August, according to FactSet estimates.

However, a cooling in workers’ pay gains is coming at a time when inflation is starting to heat back up, putting an additional damper on already moderating consumer spending.

“Employers’ continued focus on wage containment amid a slowing economy may lead to a further deceleration in wage growth toward 3.5% by the fall,” Daco said.

Influence on Fed cuts: The market believes that a September rate cut is practically a sure thing. The CME Group’s FedWatch Tool on Wednesday showed a 96.6% probability that the Fed will reduce its benchmark rate by a quarter point at its September 16-17 meeting.

However, a hotter-than-expected payroll reading may cause some central bankers to keep on pause, said Joe Brusuelas, RSM US chief economist.

“Anything below 50,000 should lean toward a [quarter] point rate cut at the Fed meeting; anything at or above 100,000 will most likely support waiting until the fall or early winter to cut rates,” Brusuelas wrote Wednesday. “The gray area in between will then cause Fed members to look more closely at the September inflation data in the Consumer Price Index and Personal Consumption Expenditures index.”

This story has been updated with additional reporting.

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