Job growth continues to slow, signaling a cooling economy

Job growth in August came in far below expectations, according to employment data released Friday by the U.S. Bureau of Labor Statistics (BLS). The U.S. economy added just 22,000 total non-farm payroll jobs in August, which economists say is further evidence of a cooling labor market.

This data comes after the estimates for the prior two months were revised down by 21,000 jobs, and a net job loss of 13,000 in June.

In addition, the unemployment rate ticked up slightly to 4.3% with 7.4 million people unemployed. This is the highest the unemployment rate has been since October 2021.

“The underwhelming jobs report reinforces the picture of a labor market that’s losing momentum without collapsing,” Sam Williamson, a senior economist at First American, said in a statement. “The three-month average now stands at 29,000, a clear slowdown from earlier in the year.”

August’s largest job gain occurred in the health care sector, which added 31,000 jobs. However, this was offset by losses in the federal government (-15,000 jobs), in mining, quarrying, and oil and gas extraction (-6,000 jobs), and wholesale trade employment (-12,000 jobs).

“The job market is softening, with even sectors like health care, which had steadily contributed to job growth, now slowing,” Mike Fratantoni, the Mortgage Bankers Association’s senior vice president and chief economist, said in a statement.

Other sectors showing notable declines included manufacturing, which lost 12,000 jobs in August and 78,000 jobs so far this calendar year. Economists said this may potentially be due to businesses responding to tariffs.

The construction sector lost 7,000 jobs in August. Residential building construction employment was down 900 jobs, and residential specialty trade contractor employment lost 5,200 jobs, which is unfavorable news for homebuilders. The only construction sector to post a job gain in August was heavy and civil engineering construction, which gained 2,300 jobs month-over-month.

Real estate and rental and leasing gained 1,600 jobs, with real estate gaining 2,900 jobs from the month prior.

“While the pace of layoffs has picked up somewhat, the hiring rate remains quite low. It is increasingly difficult for those laid off, and for new entrants into the job market, to find a position,” Fratantoni said.

Economists agree that August’s softer jobs numbers nearly guarantee that the Federal Reserve will cut interest rates at its meeting later this month.

“With inflation not reaccelerating and job growth fading, the Fed may see this as an opportunity to recalibrate—shifting policy back toward neutral, rather than launching a full pivot to stimulus,” Williamson said. “A rate cut in September would mark the first step in that adjustment, and could put downward pressure on long-term yields, offering some relief to prospective home buyers facing elevated mortgage rates and prices.”

While Williamson feels these lower rates may be the push many homebuyers and sellers need to enter the market, Lisa Sturtevant, the chief economist at Bright MLS, said consumers should be paying closer attention to how the bond market responds to the August job numbers.

“With weaker labor market conditions reported today, expect bond yields to fall, potentially pushing mortgage rates lower. However, if inflation expectations remain high, bond yields could remain high, keeping mortgage rates elevated, even with a Fed cut,” Sturtevant said in a statement. “Participants in the housing market should not try to time rates. They certainly should not expect the Fed’s decision itself to materially impact mortgage rates in the short-term.”