U.S. unemployment spikes to nearly 3-year high as job gains slow

Just days after Fed Chairman Jerome Powell confirmed that a softening job market could help propel an interest rate cut at the monetary body’s next meeting in September, a new federal report shows unemployment swelled to 4.3% in July and job growth showed significant slowing.

U.S. businesses added 114,000 new, non-farm payroll jobs in July according to a Friday report from the U.S. Department of Labor, falling far short of the 175,000 expected by many economists and trailing well behind the 217,000 new jobs per month average over the past year. The annual unemployment rate hit its highest level since October 2021 in July, inching up from June’s 4.1%. The Labor Department’s July Employment Situation Summary found the number of unemployed people increased by 352,000 to 7.2 million last month. The new data reflects a significant rise in U.S. unemployment from 12 months ago when the jobless rate was 3.5% and the number of unemployed people numbered 5.9 million.

“Temperatures might be hot around the country, but there’s no summer heatwave for the job market,” Becky Frankiewicz, president of the ManpowerGroup employment agency, told CNBC . “With across-the-board cooling, we have lost most of the gains we saw from the first quarter of the year.”

At the state level, Utah’s unemployment rate has also been on the rise, though it’s tracking at a much lower rate than the national average. The latest data from the Utah Department of Workforce Services found Utah’s unemployment rate came in at 3.0% in June, up one-tenth of a percent from May. Utah’s July employment numbers are due out later this month.

“The June numbers show another month of robust jobs growth,” Ben Crabb, chief economist at the Utah Department of Workforce Services said in a press release late last month. “For the last year, job expansion has been concentrated in construction, private education and health services and the public sector. Public sector hiring is now starting to cool and the unemployment rate, while low, has been slowly ticking upward. With inflation trending in the right direction, an interest rate cut later this year is not out of the question and would stimulate continued job growth in the state.”

Will new jobs data be enough to drive a Fed rate cut?

At a press conference Wednesday after the U.S. Federal Reserve’s July policy meeting, Powell listed some of the recent economic momentum the monetary body sees as signs a rate reduction is moving into its sights, including a 2.5% inflation reading in June, a labor market that’s moved more balanced after years of overheated performance, and wage growth that is still robust but easing into more sustainable territory.

He also noted that the 19 members of the Fed’s rate-setting Open Market Committee voted unanimously to leave rates unchanged from where they’ve stood since July 2023 after a series of 11 straight increases, a strategy aiming to cool off a too-hot U.S. economy.

While in no way guaranteeing a rate reduction will come at the Fed’s September meeting, Powell offered some foreshadowing of its likelihood, pending any unforeseen economic wobbles.

“We have made no decision about future meetings,” he said. “The broad sense of the committee is that the economy is moving closer to the point at which it will be appropriate to reduce our policy rate.”

Powell said Fed officials will be monitoring and assessing all of the economic data set to come in before next month’s meeting and “the question will be whether the totality of the data, evolving outlook and balance of the risks are consistent with rising confidence on inflation and maintaining a solid labor market.”

“If that test is met, a reduction in our policy rate could be on the table at our next policy meeting in September,” Powell said.

Powell told reporters the Fed is closely monitoring the U.S. labor market and noted that “if we see something that looks like a more significant downturn, that would be something that we would have the intention of responding to.”

While a series of steady U.S. inflation downticks over the second half of 2023 had spurred the Fed to signal late last year it could assess multiple federal lending rate cuts in 2024, inflation headed back up early this year and forced the monetary body to recompute. Now, it appears likely just a single rate cut will occur before the end of the year.

Interest rate adjustments are the Fed’s primary weapon in an ongoing battle against the elevated prices of consumer goods and services. The rate increases raise the cost of debt for businesses and consumers, a move that aims to reduce the amount of spending and overall economic activity. That shift in dynamics typically leads to lower inflation rates.