US economy sees slow job growth in July, unemployment rate rises to 4.3% amid economic challenges

WASHINGTON — U.S. recruitment slowed significantly last month in the presence of high interest rates as employers included an unexpectedly feeble 114,000 jobs.

Friday’s Labor Department report revealed a decline from the 179,000 jobs generated in June. Prognosticators had anticipated 175,000 jobs in July. The joblessness rate climbed to 4.3%, the highest since October 2021, as the quantity of unemployed Americans increased by 352,000.

The economy had displayed unexpectedly solid resilience in the face of the Federal Reserve’s effort to control inflation with high interest rates. The Fed elevated its benchmark rate 11 times in 2022 and 2023, elevating it to a 23-year peak. However, the increased borrowing expenses seem to be having an impact.

The joblessness rate has climbed for four consecutive months. Its surge to 4.3% in July surpassed a threshold that historically has indicated that the United States is in recession — though economists suggest that the measure is probably not dependable in the unpredictable post-pandemic economy.

In another indication that the labor market is cooling, mean hourly wages increased only 3.6% from July 2023, the smallest year-over-year advance since May 2021 and a trend likely to alleviate inflationary stress in the economy.

Employment gains were also focused in a few sectors. Healthcare and social assistance businesses added 64,000 jobs last month, making up 56% of recruitment. Restaurants, hotels, and bars included nearly 26,000 jobs.

The economy is preoccupying voters as they get ready for the presidential election in November. Many are unimpressed with the robust job gains of the past three years, frustrated instead by high prices. Two years ago, inflation reached a four-decade peak. The price hikes have subsided, but consumers are still paying 19% more for goods and services overall than they were before inflation first surged in spring 2021.

The so-called Sahm Rule, dubbed for the former Fed economist who devised it, Claudia Sahm, asserts that a recession is almost always already unfolding if the joblessness rate (based on a three-month moving average) climbs by half a percentage point from its low of the past year. The climb to 4.3% surpassed the threshold.

Nevertheless, Sahm, currently chief economist at the investment firm New Century Advisors, remarked before Friday’s report that this time “a recession is not imminent’’ even if unemployment surpasses the Sahm Rule threshold.

America’s employment figures have been disrupted by an unforeseen upsurge in immigration — much of it illicit — over the past couple of years. The new entrants have flooded into the American labor force and aided in alleviating labor shortages across the economy — yet not all of them have secured jobs right away, driving up the unemployment rate. Additionally, individuals who have entered the country unlawfully are less inclined to participate in the Labor Department’s employment survey, meaning they may remain uncounted as employed, as highlighted by Oxford’s Martin.

Nonetheless, Sahm remains apprehensive about the recruitment deceleration, pointing out that a deteriorating job market can perpetuate itself.

“Once you have a certain momentum going to the downside, it often can get going,’’ Sahm said. The Sahm rule, she says, is “not working like it usually does, but it shouldn’t be ignored.’’

Sahm had urged Fed policymakers to proactively reduce their benchmark interest rate at their meeting this week, but they opted to keep it unchanged at the highest level in 23 years. They are widely anticipated to commence decreasing the rate at their next meeting in September.

Economists on Friday were questioning whether the Fed had procrastinated too long to start easing borrowing costs. “Oh dear, has the Fed made a policy mistake?” said Seema Shah, chief global strategist at Principal Asset Management. ”The labor market’s slowdown is now materializing with more clarity.., a September rate cut is in the bag and the Fed will be hoping that they haven’t, once again, been too slow to act.”