The August jobs report showed the labor market weakening further. The economy added just 22,000 jobs in the month, with all of them coming in health care. Over the last three months, job growth has averaged 29,000. Outside of health care the economy lost 26,000 jobs since May.

The household survey shows a similar picture, with the unemployment rate rising to 4.3 percent, breaking out of the narrow 4.0 percent to 4.2 percent band it had been in since May of 2024. This is the highest unemployment rate since October 2021.

Wage Growth Slows Further

The average hourly wage has increased 3.7 percent year-over-year. This is down from a 4.0 percent rate in 2023 and 2024. It has grown at just a 3.5 percent annualized rate – taking the average of the last three months (June, July, August) compared with the prior (March, April, May). By the same measure, the rate of wage growth for low-paid non-supervisory restaurant workers has been just 3.2 percent. With inflation rising more rapidly, this will mean limited real wage growth.

Hours Stagnate

The average workweek was unchanged at 34.2 hours in August. This left the index of aggregate hours unchanged. For the third quarter so far, the index of aggregate hours is slightly below its average for the second quarter. This is good news from the standpoint of productivity growth, but it means that demand for labor is weakening.

Unemployment for Black Workers Rises to 7.5 Percent

The unemployment rate for Black workers rose 0.3 percentage points (pp) to 7.5 percent in August, an increase of 1.4 pp from the rate from last August. The unemployment rate for white workers fell by 0.1 pp over the last year, to 3.7 percent. The unemployment rate for Black teens rose to 24.8 percent, the highest since May 2020 when we were still in the pandemic shutdown period.

These data are highly erratic, but there can be little doubt there has been a sharp increase in the unemployment rate for Black workers this year. This divergence is extraordinary. The unemployment rate for Black workers will usually rise more than for whites when the labor market weakens, but they usually move in the same direction.

Unemployment for Young Workers Rises to 9.2 Percent

As with Black workers, young workers (ages 20-24) tend to see the impact of a weakening jobs market first. Their 9.2 percent unemployment rate for August is the highest since May of 2021.

Share of Unemployment Due to Quits Remains Low

Job leavers were only 10.7 percent of the unemployed in August, compared to an average of 13.2 percent in 2018-19 when the unemployment rate was comparable. This is evidence that workers are pessimistic about their labor market prospects, since they are reluctant to quit a job without a new job lined up.

In another sign of labor market weakness, the duration measures of unemployment are deteriorating. The share of unemployed who have been unemployed for 27 weeks or more rose to 25.7 percent, the highest since February of 2022.

Reported Foreign-Born Employment Continues to Drop

Reported employment of foreign-born people is now down by 822,000 year-over-year. This is largely reporting, since many immigrants are now hesitant to answer the survey. The corresponding rise of 2,762,000 in native-born employment is a statistical illusion, since native-born population is driven by the population controls put into the survey from Census data, minus the reported foreign-born population. If fewer immigrants answer the survey, it will mechanically lead to a rise in the number of native-born workers.   

Manufacturing and Construction both Shed Jobs in August

The manufacturing sector lost 12,000 jobs in August, all of it in the durable goods industry, which lost 19,000 jobs. Auto manufacturing lost 7,300 jobs in the month. Jobs in auto manufacturing are down 22,700 over the last year. For the durable sector as a whole, they are down 70,000. While employment in non-durables as a whole is down by 8,000 over the year, jobs in textile mill products are up by 1,000.

Construction lost 7,000 jobs in August. Employment in the sector has been virtually stagnant since December.

Job Growth in Health Care Slows

While it continues to lead job growth, the 30,600 jobs created in the health care sector in August is well below its average of 42,000 over the last year. This is likely due to cuts in government funding, some of which may not have kicked in yet, but must be calculated into the budgets of hospitals and healthcare organizations. 

There are no other obvious candidates to pick up the slack. Restaurants added 11,000 jobs in August, but employment has grown an average of just 1,500 a month since December. With real spending stagnating, it is unlikely to have a major uptick in job growth. The state and local sector lost a net of 1,000 jobs in August, with the state sector losing 13,000 and the local sector gaining 12,000. With these sectors facing serious budget pressure, they also are unlikely to add many jobs in the foreseeable future. The federal government lost 15,000 jobs in August, as many of the deferred job leavers are likely showing up now.

Jobs in scientific research and development fell by 3,600 in August. It is now down by 17,200 since January, or 1.8 percent. This is not a big deal for the labor market, but this is where many innovations originate.  

August Report Is Clear Evidence of Labor Market Weakness

The August jobs report leaves little doubt that the labor market is weakening. Job growth has slowed to a trickle and wage growth is falling to a pace that barely exceeds the rate of inflation. As the impact of tariffs is felt more at the retail level, real wage growth will likely turn negative, especially for the lowest paid workers.

While the unemployment rate is still low by historic standards, it is moving in the wrong direction. The extraordinarily low quit rate, both as a share of unemployment and the quits data, shows worker pessimism about their labor market prospects. The large jumps in unemployment for Black workers and young workers also provide a warning about future directions for the labor market.