WASHINGTON (Reuters) -Job growth over the last three months has hit one of the weakest patches, outside the pandemic, since the U.S. economy was limping to recover from the 2007 to 2009 financial crisis and recession.
Yet the unemployment rate is the same as it was a year ago at 4.2%, around Federal Reserve estimates of full employment. Wage growth of roughly 4% annually is enough to keep workers ahead of inflation but not so much it raises inflation concerns.
Fed officials weighing a possible rate cut at their September meeting will have to decide which set of competing facts send the strongest signal about the future of the U.S. job market, with a potentially pivotal report on Friday showing whether weak job growth continued for a fourth month in August, or rebounded in a sign that the labor market remains healthy.
If recent months offer a clue, the answer may remain in the eye of the beholder among policymakers split between those who feel the job market could be at the brink of breaking, and those who see the current situation as harder to read given continued wage growth and a dip in the supply of workers that may make slower monthly job growth the new normal.
Job gains have averaged just 35,000 over the last three months, a figure that may have raised alarm about rising unemployment in prior years, but is closer to a "breakeven" level that is estimated to have fallen well under 100,000 due to deportations and tighter immigration.
The current breakeven level of job creation "is really hard to determine," New York Fed president John Williams said on CNBC last week, adding that he had started looking at indicators like wage growth for signs of overall job market health and felt it was still "consistent with a solid labor market and inflation coming towards our 2% goal."
"We're seeing a labor market that largely reflects a slowdown in the pace of hiring, and a kind of a reluctance to let go of workers. But the question is, is that a stable equilibrium, or is it basically a truck stop on the way to something else?" said Nela Richardson, chief economist with payroll processor ADP, "That truck stop on the way to something else could be higher employment growth if the consumer stays reliable, but if there are cracks in consumer spending, I think you're going to see a slowdown in momentum...We're at an inflection point."
The Fed meets on Sept. 16-17, with markets putting a high probability on a quarter-percentage point rate cut, an expectation set against a backdrop of White House pressure for lower interest rates from President Donald Trump. While Fed policymakers say that any given decision at any given meeting typically doesn't matter much in a $30 trillion economy, September has taken on symbolic importance as a referendum on whether the Fed is ready to look beyond concerns about Trump administration policies boosting inflation, and begin lowering interest rates towards a more neutral level - a destination they had in view up until December.