The weak August jobs report increases pressure on the Fed to cut interest rates this fall. Getty Images
“The job market is done, busted.” That’s how Chris Rupkey, chief economist at FWDBonds, described the August jobs report released today (Sept. 5). The unemployment rate has climbed to its highest level since 2021, fueling fears that the U.S. may be tipping into recession for real.
The U.S. economy added just 22,000 jobs in August, far short of the 75,000 expected. The Bureau of Labor Statistics also revised June’s data to show a staggering loss of 13,000 jobs. Over the past three months, the economy has added only 29,000 jobs in total.
August’s payroll losses were particularly acute in professional and business services, the federal government and wholesale trade. But weakness was evident across sectors. “There have also been sustained losses over recent months in manufacturing, construction and mining, an indication that Trump’s blue-collar renaissance is clearly not happening,” Elise Gould, senior economist at the Economic Policy Institute, posted on Bluesky.
Analysts now widely expect the Federal Reserve to cut rates by 25 basis points at its Sept. 17 meeting, with further reductions likely in October and November. The pace of those cuts will depend on August’s inflation reading, due Sept. 11.
Oliver Allen, senior economist at Pantheon Macroeconomics, warned that the risk of layoffs is rising as employers lose confidence in the economy’s outlook. “So far, employers have not hired or fired much, but there are risks that layoffs could increase and would be an indication of a significant slowdown,” Allen told Observer. He estimates GDP growth at 1.7 percent this year, down from 2.8 percent in 2023. To prevent a deeper slowdown, he said the Fed must cut rates, and President Trump should ease tariff and immigration policies that have constrained the labor supply.
If the job market deteriorates sharply, Allen added, “there isn’t much the government could do right away and any policy changes would take time to pass, as we saw with the Big Beautiful Bill.”
A German-style fix?
Allen suggested one option would be adopting something akin to Germany’s Kurzarbeit program, which subsidizes wages to help employers retain workers. But he noted such a “social market economic agenda” is unlikely to appeal to the Trump administration, which would probably lean toward unemployment insurance rather than payroll subsidies.
Michael Englund, chief economist at Action Economics, said the U.S. labor market would have to weaken far more before Washington considered European-style subsidies or another round of pandemic-era programs like the Paycheck Protection Program.
“So far, we don’t see enough evidence to say the job market is signalling recession,” Englund told Observer. “Weekly jobless claims have been moving sideways, and retail sales and household income remain strong, supporting our soft-landing scenario.”
Englund also downplayed concerns about tariffs. “The tariffs’ bravado continues to look more like a negotiating strategy, and (the administration) has been reaching agreements with different countries,” he said. “The tariffs will bring billions of dollars in revenues, which will finance the Big Beautiful Bill’s tax cuts, so the net effect on inflation will be zero.”
