WRAPUP 2-US job growth weakened sharply in August; unemployment rate rises to 4.3%

U.S. job growth weakened sharply in August while the unemployment rate increased to 4.3%, confirming that labor market conditions were softening and sealing the case for an interest rate cut from the Federal Reserve this month.

Nonfarm payrolls increased by only 22,000 jobs last month after rising by an upwardly revised 79,000 in July, the Labor Department's Bureau of Labor Statistics said in its closely watched employment report on Friday. Economists polled by Reuters had forecast payrolls rising by 75,000 positions after a previously reported 73,000 gain in July. The initial August job count has tended to exhibit a weak bias, with revisions subsequently showing strength. Estimates ranged from no jobs added to 144,000 positions created.

The report followed news this week that there were more unemployed people than vacancies in July for the first time since the COVID-19 pandemic. Job growth has shifted into stall-speed, with economists blaming President Donald Trump's sweeping import tariffs and an immigration crackdown that has reduced the labor pool. The softness in the labor market is mostly coming from the hiring side. Trump's duties, which have boosted the nation's average tariff rate to the highest level since 1934, stoked fears of inflation and resulted in the U.S. central bank pausing its interest-rate cutting cycle. Just as some of the uncertainty over trade policy was starting to lift with most tariffs now in place, a U.S. appeals court ruled last Friday that many of the duties were illegal, keeping businesses in a state of flux.

The unemployment rate increased from 4.2% in July. Trump last month fired the BLS commissioner Erika McEntarfer, accusing her, without evidence, of faking the employment data. That followed sharp downward revisions to May and June's payroll counts.

But economists have defended McEntarfer and attributed the revisions to the 'birth-and-death" model, a method the BLS uses to try to estimate how many jobs were gained or lost because of companies opening or closing in a given month. LOW LABOR MARKET CHURN

"We are in a low churn labor market, with not a lot of hiring or firing happening. So that means the job growth that we do see in the economy is mainly driven by the net birth of new firms," said Ernie Tedeschi, director of economics at the Budget Lab at Yale University. "But that just happens to be the most imputed part. It's the most sensitive to revision, because it's the result of explicit modeling by BLS, rather than something that they can survey."

Slow job growth is likely to be reinforced when the BLS next Tuesday publishes its preliminary revision estimate to the level of employment for the 12 months through March. Based on the currently available Quarterly Census of Employment and Wages data, economists estimated the level of employment could be revised down by as much as 800,000. The QCEW data is derived from reports by employers to the state unemployment insurance programs.

Trump has nominated E.J. Antoni, chief economist at the conservative think tank Heritage Foundation. Antoni, who has penned opinion pieces critical of the BLS and even suggested suspending the monthly employment report, is viewed as unqualified by economists across political ideologies. Fed Chair Jerome Powell last month signaled a possible rate cut at the U.S. central bank's September 16-17 policy meeting, acknowledging the rising labor market risks, but also added that inflation remained a threat. The Fed has kept its benchmark overnight interest rate in the 4.25%-4.50% range since December.

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