There have been four consecutive months of weak job growth. Slower growth is likely to continue into September. A major factor is the slowing of potential labor force growth due to the curtailment of immigration. This is by design. However, there are other measures of the labor market, notably slower wage growth and low hiring and quit rates, that indicate there is also weakness on the demand side.

Job numbers will continue to be important, but the underlying growth rate is likely in the 30,000 to 60,000 range, rather than the much more rapid growth rate the economy experienced before immigration was curtailed. The bigger issue in the establishment survey is the composition of the growth, as well as wage growth.

The household survey takes on greater importance in this context. It is important to remember the large amount of sampling error in the household survey. The changes in employment levels month to month are driven largely by these errors; however, the ratios for employment and unemployment are reasonably reliable, at least for large demographic groups.

Unemployment May Tick Higher

Unemployment rose to 4.3 percent in August, breaking out of the narrow 4.0-4.2 percent range it had been in since May of 2024. This is still a relatively low unemployment rate, although it is the highest since October 2021. Weekly unemployment claims have remained relatively low, so it is unlikely that there will be a major uptick in unemployment, but the rate could edge higher so that it rounds to 4.4 percent.

Unemployment for Black Workers May Edge Lower

The unemployment rate for Black workers rose to 7.5 percent in August. This put it 1.4 percentage points above the year ago level. In the same period, the unemployment rate fell 0.1 percentage points for white workers to 3.7 percent. The unemployment rate for Black workers has typically been close to twice the rate for white workers, although that ratio narrowed in the tight labor market in pandemic recovery, so the gap is not of itself surprising, but the differing trend over the last year is extraordinary.

Black workers would typically be hit harder by a weakening of the labor market, but white workers would also see some effect. That has not been the case in the last year. The data for unemployment for Black workers is highly erratic. It is likely that some of the increase was measurement error, so it may be reversed in the new month’s data. If the September rate is 7.5 percent, or close to this figure, it will mean we have seen a striking divergence in labor market prospects.  

Employment Rates for Young Workers Are Falling

Young workers also feel the effects of a weak labor market more strongly. The unemployment rate for workers between the ages of 20-24 hit 9.2 percent in August. This is the highest rate since May 2021. It is 3.7 percentage points above the low hit in April of 2023. There has been a similar deterioration in the employment-to-population ratio (EPOP), which fell 1.6 p.p. in August to 63.7 percent, and is now 3.7 p.p. below the peak hit in March 2023.

The Duration of Unemployment Is Getting Longer

The average duration of unemployment spells rose to 24.5 weeks in August, the highest since April 2022. It hit a recovery low of 19.3 weeks in February 2023. The share of the unemployed who have been out of work more than 26 weeks hit 25.7 percent, the highest since February 2022.

Unemployment Due to Quits Remains Low

The share of unemployment due to quits was 10.7 percent in August, compared to an average of 13.2 percent in 2018-19 when the unemployment rate was comparable. This indicates workers are pessimistic about their labor market prospects, since they are reluctant to quit a job without a new job lined up.

Wage Growth Likely to Slow Further

The average hourly wage increased 3.7 percent year-over-year as of August. This is down from a 4.0 percent rate in 2023 and 2024. It rose at just a 3.5 percent annual rate taking the average of the last three months (June, July, August) compared with the prior three (March, April, May). The slowing has been even sharper for low-paid workers whose wages are most sensitive to labor market conditions. The annual rate of wage growth for low-paid non-supervisory restaurant workers has been just 3.2 percent, comparing the last three months with the prior three.

Hours Worked Has Stagnated

The index of aggregate weekly hours was unchanged in August and stood slightly below its second quarter level. This indicates productivity is likely increasing at a healthy pace but also shows weakness in labor demand.

Health Care to Again Lead Employment Growth

The health care sector added 30,600 jobs in August, with social assistance adding another 16,200 jobs. Everything else lost 24,800 jobs. The federal government lost 15,000 jobs in August (or 11,300 jobs, excluding postal workers). Non-postal employment is now down by 85,000 since January. There will be further decline this month and next as the deferred departures offered early in the year take effect.

State and local governments, which together added an average of 34,000 jobs a month in 2024, lost 1,000 jobs in August. Budget pressures will limit job growth through the rest of the year. Restaurants added 11,000 jobs in August, but this brought employment to just 13,000 above the December level. The sector had been adding 11,000 jobs a month in 2024.

Employment in the Goods Sector is Stagnating

All three major categories in the goods sector lost jobs in August, with mining, construction, and manufacturing losing 5,500 jobs, 7,000 jobs, and 12,000 jobs, respectively. While employment in mining and manufacturing had been trending slightly downward, construction had created an average of 16,000 jobs a month in 2024. The weakening in construction of factories and hotels, combined with ongoing weakness in residential construction, is slowing employment. The loss of immigrant labor is likely also hurting job growth. There may be a small job gain in the sector in September, but the other two sectors are likely to show modest losses.

Labor Market Remains Weak, but Not Collapsing

The overall picture is one of a labor market that is deteriorating but not falling into recession. It is getting harder for workers to find jobs, with the weakness hitting Black workers and young workers most intensely. Limited job opportunities are also having an impact on wage growth, especially for workers at the low end of the wage ladder. However, we are not seeing the rapid job losses that would be typical of a recession.