US Labor Market: Deteriorating but Not Collapsing

Recent labor market data for the U.S. shows signs of a slowdown, but it’s not a full-blown collapse. In August 2024, the economy added 142,000 jobs—falling short of expectations of 160,000 but still a notable improvement from July’s downwardly revised 89,000. Key sectors such as construction (+34K) and healthcare (+31K) led job gains, but declines in manufacturing (-24K) and durable goods (-25K) dragged down the overall numbers. 

The unemployment rate ticked higher as layoffs surged. July 2024 saw a sharp rise in job layoffs and discharges, which increased to 1.76 million from 1.56 million in June—a significant jump indicating growing pressure on U.S. companies. Meanwhile, the number of job openings fell by 237,000 to 7.673 million in July, marking the lowest level since January 2021. Particularly hard hit were healthcare and social assistance (-187,000), state and local government (-101,000), and transportation and warehousing (-88,000).

While this data suggests a weakening labor market, it isn’t weak enough to justify a 50bps rate cut from the Federal Reserve. Instead, markets are now pricing in a 25bps cut. However, attention now shifts to Wednesday’s CPI data. If inflation comes in lower than expected, the odds of more aggressive cuts could rise. On the flip side, if inflation remains stubborn, the Fed could maintain a more conservative approach.

These numbers signal that while the labor market is deteriorating, it’s not collapsing. For traders, this suggests a cautious market with an eye on potential inflation surprises that could change the Fed’s course in the near term.