Sluggish jobs report clears way for Fed Reserve to cut interest rates

WASHINGTON (AP) - Hiring by America's employers picked up a bit in August from July's tepid pace, and the unemployment rate dipped for the first time since March in a sign that the job market may be cooling but remains sturdy.

Employers added a modest 142,000 jobs, up from a scant 89,000 in July, the Labor Department said Friday. The unemployment rate ticked down to 4.2% from 4.3%, which had been the highest level in nearly three years. Hiring in June and July, though, was revised sharply down by a combined 86,000. July's job gain was the smallest since the pandemic.

"The labor market is weakening," said Eugenio Aleman, chief economist at Raymond James Financial. "It is not falling apart, but it is weakening."

The cooling jobs figures underscore why the Federal Reserve is set to cut its key interest rate when it next meets Sept. 17-18, with inflation falling steadily back to its target of 2%. Still, Friday's mixed jobs data raises the question of how large a rate cut the Fed will announce. It could decide to reduce its benchmark rate by a typical quarter-point or by a larger-than-usual half-point. In the coming months, the policymakers will also decide how much and how fast to cut rates at their subsequent meetings.

Christopher Waller, an influential Fed policymaker, suggested in a speech Friday that the central bank is leaning toward a quarter-point reduction this month. But he left the door open for larger rate cuts, if necessary, later this year.

"I do not expect this first cut to be the last," Waller said in a speech at the University of Notre Dame. "With inflation and employment near our longer-run goals and the labor market moderating, it is likely that a series of reductions will be appropriate."

"I am open-minded," he added, "about the size and pace of cuts, which will be based on what the data tell us about the evolution of the economy."

Waller also said the economy and job market are still growing, "and the prospects for continued growth and job creation are good," a sign that for now, he thinks a quarter-point reduction is appropriate for the Fed's first rate cut.

Collectively, Friday's figures depict a job market slowing under the pressure of high interest rates but still growing. Many businesses appear to be holding off on adding jobs, in part because of uncertainty about the outcome of the presidential election and about how fast the Fed will reduce its benchmark rate in the coming months.

Daniel Zhao, lead economist at the career website Glassdoor, said some of the details in the August jobs report indicate that businesses' demand for workers is slowing. The number of Americans who are working part time but would prefer full-time work rose, extending a year-long trend.

"When you look under the hood, you're seeing numbers that confirm that the job market is on that cooling trajectory," Zhao said.

America's labor market is now in an unusual place: Jobholders are mostly secure, with layoffs low, historically speaking. Yet with the pace of hiring having weakened, landing a job has become harder.

Christopher Millan, an outof-work operations manager in Miami, has found the job market to be much more unforgiving than it was when he last looked for work in 2022. Millan, 34, who was laid off in February from an interactive-kiosk company, has since applied for more than 1,000 jobs. He has landed just a few interviews and received no offers.

Two years ago, he said, it took just a few months for him to find a new position. He recently heard of an open job in his field from a friend.

But after applying, he was told that the company had instituted a hiring freeze until fall. Millan said he thinks many companies are reluctant to fill their open jobs because they're uncertain about the economy's outlook.

"I feel like everyone is battening down the hatches," he said. "It's very frustrating."