Labor market stalled this summer, with August data adding to slowdown

After persevering through years of high interest rates and wild swings in economic policy, the labor market appears to be sputtering, in a slowdown that could build on itself as consumers lose confidence and pull back on spending.

Employers added only 22,000 jobs in August, well below the number that forecasters had expected. The unemployment rate rose very slightly to 4.3%, showing both that businesses' appetite for new recruits and the number of available job-seekers have faded in the last several months.

The economy has been cooling since its red-hot pandemic peak as the Federal Reserve worked to tame inflation, and has more recently been buffeted by a barrage of tariffs and other disruptive actions by the Trump administration.

Employers haven't been letting go of workers in large numbers, but employees have also been hanging on tightly to their jobs. That leaves little room for anyone entering the job market for the first time, or trying to get back in after losing work.

"Once you turn negative, you usually do so rapidly," said Diane Swonk, chief U.S. economist for the accounting firm KPMG. "When the pace of hiring, the pace of layoffs and the pace of quits are so low, there's very little margin for error."

The August report solidified a reality that suddenly became apparent last month when job growth for the early summer was revised down substantially. With more employer surveys in, it now appears that the economy subtracted jobs in June, the first negative number since December 2020, with the COVID-19 pandemic still raging.

It's also shaping up to be an unusually lackluster year: Since January, employers have added fewer jobs than in any year since 2010, when America had 17 million fewer workers and was emerging from a financial crisis.

The darkening labor market picture poses risks for President Donald Trump, who has staked his presidency on a strong economy. His approval ratings on the economy have been steadily sinking: down to 37% in August from 42% in February, according to Gallup. That could spell trouble for the president and Republicans before the midterm elections.

The weak data likely locks in an interest-rate cut when the Federal Reserve meets in two weeks. But monetary policymakers are hesitant to keep easing in order to shore up the labor market, since inflation recently turned upward as the economy digests whopping new tariffs on most imports.

"The best thing for our economy would be to have some certainty on the cost of goods, because a lot of business decisions are being distorted by tariffs," said Sara Rutledge, an independent economic consultant. "Cutting rates could spur more inflation, and that's my concern."

The only sector hiring significantly is also among the least exposed to tariffs: health care. The industry added 30,600 jobs in August and is responsible for a third of all job gains over the past two years. But that growth rate has also been slowing, and job openings in health care dropped sharply over the summer. Looming funding cuts to Medicaid that were included in the domestic policy bill that Republicans passed this year will also put pressure on hospitals, clinics and nursing homes.

Outside leisure and hospitality, which added 28,000 jobs, other industries either stayed flat or shrank. That includes manufacturing, which has shed 78,000 jobs over the past year for a number of reasons.

Congress' decision to remove subsidies for clean energy development has deflated domestic production of solar power and batteries for electric vehicles. High borrowing costs make capital investment more expensive, a headwind that only artificial-intelligence-related data centers have been able to push through.

The Trump administration's aggressive drive to expel immigrants and deter new ones is also raising the cost of building factories, such as a battery plant in Georgia where the Department of Homeland Security announced it had arrested 475 workers Friday. And tariffs add cost to the steel and concrete that go into those plants.

The ever-shifting tariff landscape has squelched hiring at Todson, a distributor of bicycle parts that are largely manufactured in Europe, China and Taiwan. The company has about 50 employees, some of whom work at a warehouse in Nevada, with the rest near Boston.

Very few staff have left in recent years, said Todson's president, Jeff Greenstein, since the outdoor recreation products sector has been contracting after a pandemic surge. When he has posted job openings, there are plenty of applications. But he has put off hiring, waiting for some clarity on what his profit margins will look like after tariffs are factored in.

"We've had interest; that hasn't been the issue," Greenstein said. "It's just like, we want to reach a point of stabilization. We had a short-lived one, but then it kind of went away."

Another sector that's typically immune to tariffs and interest rates, public service, continues to rapidly contract. The ongoing firings and voluntary resignations in the federal government have subtracted more than 10,000 jobs per month this year. The losses are likely to mount in October, since many workers took a deal to be paid through the end of September, and hiring for thousands of immigration enforcement officers could take a few months to kick in. State government payrolls have also turned negative, shedding workers since April.

For people who find themselves without jobs, getting back into the labor market is becoming increasingly difficult. The number of people who have been unemployed for 27 weeks or longer rose to 1.93 million, or a quarter of everyone who is out of work. And unemployment has been rising fastest among people ages 16 to 24, who tend to have less experience.

All of that is taking a toll on the moods of both businesses and workers, even those who are lucky enough to remain employed. In the monthly survey by the National Federation of Independent Business, executives say they are having an easier time filling open roles and are less likely to raise pay. The difference in the share of consumers in Conference Board surveys who say jobs are "plentiful" versus "hard to get" is at its lowest level since early 2021.

"They're more reluctant to say to the boss, ‘Hey, I see you're struggling to get hires; if you want me to stay, you've got to pay me more,'" said Christopher Williamson, the chief business economist at S&P Global Market Intelligence. "They're more worried that the boss is going to turn around and say, ‘Sorry, we've got to let you go.' So that wage bargaining power just isn't there at the moment."

Average hourly earnings rose 3.7% from a year earlier - still a healthy increase, but the slowest pace since July 2024. With prices rising more quickly, there's a danger that wages will fall behind inflation, leading consumers to close their wallets in a way that causes businesses to let go of workers. And the share of the population that is employed has sagged since reaching a post-COVID peak two years ago, which means fewer wage earners are supporting everybody else.

Nonetheless, most forecasters do not expect a full-blown recession. Matt Bush, managing director of macroeconomic research at Guggenheim Partners, notes that the tax cuts in the Republicans' domestic policy bill will also support some investment in the coming year, even as deficits mount.

"I think we're past the worst of the initial policy uncertainty shock. Businesses are learning to adapt and how to navigate in this environment, so that should provide some support," Bush said. "We don't see a big acceleration from here, but we don't expect a dramatic deceleration, either."

This article originally appeared in The New York Times.