Job growth stalls as the Fed weighs a September interest rate cut

August’s jobs report didn’t need fireworks. It just needed to show a labor market cooling without cracking, the kind of Goldilocks print the Fed could nod at while lining up a September rate cut. Instead, it came in flat: Nonfarm payrolls rose by just 22,000, the weakest monthly gain since April, and significantly short of economists’ expectations of roughly 75,000 new jobs, making the August miss clear. The unemployment rate ticked up to 4.3%, a near four-year high, and wages rose 0.3% on the month (3.7% year over year), the slowest annual wage growth since July 2024. A market that was supposed to be cooling without cracking is now verging on stall speed — slow hiring, unemployment steady, and wages still moderating.

That’s not a collapse — but it’s not much of a story, either.

“This is what a soft landing looks like,” said Jeffrey Roach, the chief economist at LPL Financial. Ken Mahoney, the CEO of Mahoney Asset Management, said this is an “alarming” jobs report — “under the hood, a lot seems to be going in the wrong direction.”

Markets read the jobs print largely as permission to ease. Within minutes of the release, the S&P 500 and Nasdaq surged to record highs as investors saw renewed justification for a September rate cut. At the same time, Treasury yields dropped sharply — the two-year fell toward 3.5 to 3.6%, the lowest in years — and the dollar weakened against other currencies.

Still, the report’s details told a thin tale. Health care once again carried the load, adding 31,000 jobs. Social assistance contributed 16,000. But nearly everything else slumped. Manufacturing as a whole lost 12,000 jobs — including a 15,000 drop in transportation equipment tied to strikes. Wholesale trade and the federal government each shed 12,000 to 15,000 jobs, extending a decline that has totaled nearly 100,000 jobs since January, and the attrition could deepen in October as more workers roll off severance. Mining slipped lower, and temporary help — the canary in the coal mine for weak hiring — fell by 10,000. Even leisure and hospitality, once the comeback kid, mustered only 28,000. Restaurants and bars added 11,000, hotels barely 2,000 — hardly a boom.

Strip out health care and social assistance, and the labor market is drifting sideways at best. Only those two out of the 18 tracked sectors showed gains. Private payrolls rose only 38,000 while government employment fell 16,000, with federal agencies accounting for nearly all of that decline. The diffusion index — a measure of how many industries are gaining versus losing — slid to 49.6, signaling that job losses were nearly as common as gains.

A labor market running on fumes

Bill Adams, the chief economist for Comerica Bank, said the August numbers showed weakness “across both goods-producing and service-providing industries,” reinforcing expectations for a September cut but also underscoring an economy “running in low gear” until policy turns more supportive in 2026. Laffer Tengler Investments CEO and chief investment officer Nancy Tengler said the story isn’t just cyclical but structural: Companies are pouring money into technology rather than headcount, a dynamic she likens to the 1990s productivity boom.

Together, their read suggests a labor market cooling in the short term and reshaping in the long term.

That picture was only sharpened by the revisions. June is now logged as a net loss of 13,000 jobs — the first negative month since December 2020 — ending a 52-month expansion. Taken with July’s upward tweak to 79,000, the two-month revisions still left payrolls 21,000 lower than first reported. On a three-month average, job growth is running at just under 30,000 — stall speed in all but name. Employers aren’t rushing to cut staff, but they’ve clearly lost their appetite to add.

Ed Maguire at Freedom Capital Markets said this report showed “further softening,” but he argued the mix still leaves the economy “net-net” in “Goldilocks territory” — a scenario where job growth slows just enough to relieve wage pressure without tipping into layoffs — “with enough underlying strength to offset tepid jobs data.”

The household survey offered its own split-screen. More Americans reported being employed, and prime-age participation ticked up to 83.7%. But the share of consumers telling the Conference Board that jobs are “plentiful” versus “hard to get” has slumped to its lowest since early 2021. Small-business owners, once desperate to fill openings, now say they’re finding it easier to hire and less inclined to raise pay. Continued unemployment claims have stayed elevated since April.

Broader underemployment ticked up, with U-6 rising to 8.1% — a reminder that slack runs deeper than the 4.3% headline suggests. Long-term unemployment has crept up, as well, to 1.9 million, now more than a quarter of the jobless. The number working part-time for economic reasons held at 4.7 million, while 6.4 million people outside the labor force said they still want a job.

The “no hire, no fire” dynamic — sluggish job creation without mass layoffs — has kept the floor from falling out, but it hasn’t inspired confidence, either. This is a softer labor market that is still working, just more slowly, and for fewer people. Average weekly hours stayed stuck at 34.2, while pay for production and nonsupervisory workers rose 0.4% to $31.46 — a sign that wage pressure is steady but cooling.

The report didn’t land in isolation. Initial claims have been edging higher for months, job openings are back to their lowest level in nearly a year, and both ISM manufacturing and services surveys flagged falling employment in August. The jobs print also echoed private-sector trackers: ADP reported only 54,000 new jobs in August, with its three-month average at 46,000. Taken together, the economy is flashing a macro picture that reinforces the sense of a labor market losing altitude, not just wobbling for a month.

Just enough weakness for the Fed

That streak of stagnation arrives just as the Federal Reserve prepares for its September meeting. Powell signaled at Jackson Hole that the central bank is prepared to cut rates in September if inflation keeps cooling and the labor market keeps softening.

The central bank chief has already framed the labor market as a “curious balance” — demand cooling while the supply of available workers also shrinks, in part due to Trump’s immigration restrictions. After August, things look even further imbalanced: a job market weak enough to justify easing, but not cracked enough to panic. Traders came into Friday already pricing a September cut; this report locked that in — and some are now even betting on back-to-back cuts in September and October.

“A 50-basis point cut is now in play,” said Jamie Cox, the managing partner for Harris Financial Group. “The Federal Reserve’s free pass on the labor market has ended,” with this week’s employment data giving ”the Fed all the reasons it needs to shift its balance of risks and lower rates in two weeks.”

And then there’s the politics. July’s weak report, with its 258,000 downward revision to prior months, ended not with a debate over seasonal factors but with President Trump firing BLS Commissioner Erika McEntarfer, accusing her of “rigged” statistics. On Friday, Commerce Secretary Howard Lutnick doubled down, saying the numbers had been “bent against Donald Trump” and promising the agency would now be “onside.” Trump’s nominee to replace her, Heritage Foundation economist E.J. Antoni, who has floated scrapping the monthly report altogether in favor of a quarterly version, hasn’t been confirmed. But credibility doesn’t wait for a Senate vote — and once dented, it’s hard to repair.

Which leaves the August jobs report playing two roles at once: a technical signal that hiring has slowed to the edge of stagnation, and a political litmus test for whether official data can still be trusted. On the economics, the message is simple: The labor market is cooling.