Take, for example, December’s U.S. labor market employers created an astounding 323,000 new jobs. This was a huge turnaround from prior months. The boost in hiring brought about the dip in the unemployment rate, which ticked down to 4.1%. Overall, the story was a bit more mixed, as prior months brought even more troubling indicators on employment continuity to light.
Compared to the December numbers, the July job growth was significantly stronger. Employers created just 73,000 jobs – not nearly enough to meet even the low threshold needed to stay ahead of the growth of the population. Across any baseline, this decline raised flags around the sustainability of the labor market. The recent CPI print showed that inflation hasn’t receded as quickly as anticipated.
The Federal Reserve chose to hold borrowing costs steady during its July meeting, a decision underscored by Fed Chair Jerome Powell. The robust labor market, he said, provides central bankers with a rare opportunity. They can judge the impact of President Donald Trump’s tariffs on prices before moving to change monetary policy in greater ways.
From May through July, monthly job creation averaged at its lowest rate since 2009. This positive trend is overall, even when removing the effects of the pandemic recession in 2020. In July, the unemployment rate unexpectedly increased to 4.2%, undoing the recent downward trend. The Labor Department revised the job gains for the past two months down by 25,000. This amendment makes the employment prospects even murkier.
Cleveland Fed President Beth Hammack expressed confidence in the Federal Reserve’s decision regarding interest rates, highlighting the need for careful monitoring of economic indicators. Given all the recent ups and downs, many labor market experts are still cautious about where we’re headed.
Jamie Cox voiced concerns about the Fed’s decision to hold rates steady, stating, “Powell is going to regret holding rates steady this week.” This feeling speaks to a growing panic among econs about ever more tenuous aspects of the labor market.
Michelle Bowman noted that “the labor market has become less dynamic and shows increasing signs of fragility,” pointing to a trend where only a few industries have driven job growth this year. This stunted growth raises concerns over the vitality of our economy. It casts doubt on its preparedness to absorb new workers.
Even with December’s encouraging jobs report, analysts are quick to warn that these numbers don’t necessarily mean a strong recovery is underway. In a surprise move, the central bank cut interest rates by 50 basis points last year. This shift was intended to counter any additional softening in the labor market and highlighted persistent fears about recessionary pressures.