US Job Growth Falls Short of Expectations: Economy Struggles Under High Interest Rates

Last month, job growth in the United States was weaker than predicted, prompting concerns that the world’s largest economy is beginning to struggle under the weight of increased interest rates.

The Labour Department said that employers added 142,000 jobs in August, which was less than the nearly 160,000 economists predicted. It also stated that job gains over the preceding two months were weaker than expected.

However, the jobless rate went down to 4.2%, down from 4.3% in July.

The report is one of the most important indicators of the US economy and arrives at a vital time, as voters consider presidential candidates for the November election and the US central bank contemplates its first interest rate decrease in four years.

Analysts said the latest statistics kept the Federal Reserve on pace for a rate drop at its meeting this month, but did little to answer worries about the trajectory of the US economy or how much of a cut it should make.

“There has rarely been such a make-or-break number; unfortunately, today’s jobs report does not completely resolve the recession debate,” said Seema Shah, chief global strategist at Principal Asset Management.

Soaring prices in 2022 caused the Federal Reserve to hike its key lending rate to 5.3%, a nearly 20-year high.

Faced with increased borrowing costs for homes, vehicles, and other debt, the economy has slowed, helping to alleviate pressures that were boosting inflation but exacerbating market concerns.

As inflation has fallen to 2.9% in July, the Fed is under pressure to decrease interest rates to prevent additional economic deceleration.

Although job increases in August fell short of expectations, they were greater than in July, when a slowdown aroused anxieties and triggered several days of stock market volatility.

Last month, construction and health-care firms hired the most, while manufacturing and retailers laid off employees.

Ms Shah stated that the data in Friday’s report was mixed, but provided enough concerning indicators that the Fed should make a larger cut.

“On balance, with inflation pressures subdued, there is no reason for the Fed not to err on the side of caution and frontload rate cuts,” she told reporters.

Others, however, felt the advances were just steady enough to warrant a 0.25 percentage point decrease, as markets had long projected – though this could signal more cuts than expected in the coming months.

Paul Ashworth, Capital Economics’ senior North America economist, predicted that the Fed’s decision will be “close run.”

“The labour market is clearly experiencing a marked slowdown,” he said, adding that the new statistics were “overall still consistent with an economy experiencing a soft landing rather than plummeting into recession”.

Concerns about the economy are a major issue in the US election.

According to polls, a majority of Americans feel the US is in a recession, despite healthy 2.5% growth last year.

Donald Trump has declared that the economy is headed for a “crash,” and his team instantly latched on the latest data to criticise Vice President Kamala Harris, publishing a press release titled “warning lights flash as Kamala’s economy continues to weaken.”

Democrats have defended their performance, claiming that the United States survived the pandemic and inflation better than many other countries.

They believe the slowdown is a sign that the economy is returning to a more sustainable rate of growth following the post-pandemic boom.

“Although hiring has slowed, the US job market continues to generate solid job gains and wage growth that is consistently beating inflation,” the White House Council of Economic Advisors stated in a blog.