Weekly Update 09/05/2025: US Employment Growth Cools Increasing Likelihood of Fed Rate Cut at September Meeting
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Domestic Economic News
US job growth cooled notably last month while the unemployment rate rose to the highest since 2021, fanning concerns the labor market may be on the cusp of a more significant deterioration. Nonfarm payrolls increased 22,000 in August, according to a Bureau of Labor Statistics report out Friday. Revisions showed employment shrank in June — the first payrolls decline since 2020. The jobless rate ticked up to 4.3%. Traders solidified bets that the Federal Reserve will cut interest rates at its Sept. 16-17 meeting, which Chair Jerome Powell signaled in a speech last month during the central bank’s annual Jackson Hole symposium. The figures will likely heighten concerns about the durability of the labor market after the prior month’s report showed a shockingly cooler hiring picture than previously thought. Job gains have moderated materially in recent months, openings have declined and wage gains have eased, all of which are weighing on broader economic activity. Several sectors, including information technology, financial services, manufacturing, federal government and business services, posted outright declines in August. Job growth was concentrated in health care and leisure & hospitality. While July payrolls were revised slightly higher, the jobs picture looked even worse in June. The adjustments follow the sizable downward revisions seen in the last jobs report, which were the largest since 2020. Accounting for the revisions in this report, employment growth in the last three months has averaged just 29,000. Payrolls have come in under 100,000 for four straight months, extending the weakest stretch of job growth since the pandemic. In addition to the routine revisions the BLS conducts every month, the agency also administers annual revisions that benchmark the data against a series that’s more expansive, albeit less timely. A preliminary estimate of that figure is due Tuesday ahead of the final number early next year.
US job openings, according to the JOLTS report released earlier this week, fell in July to the lowest in 10 months, adding to other data that show a gradually diminishing appetite for workers amid heightened policy uncertainty. Available positions decreased to 7.18 million from a downwardly revised 7.36 million reading in June, according to Bureau of Labor Statistics data published Wednesday. The median estimate in a Bloomberg survey of economists called for 7.38 million openings. The pullback in openings was driven by health care, retail trade and leisure & hospitality. Vacancies in health care, which has been a major driver of job growth this year, dropped to the lowest level since 2021. The slide in vacancies indicates companies are becoming more cautious and selective with their hiring as they attempt to gauge the impact of President Donald Trump’s trade policy on the economy. In addition to the openings data, the pace of hiring has slowed and it is taking longer for unemployed people to find another position. Federal Reserve policymakers are closely monitoring labor market data for any concerning signs of weakness. Fed Chair Jerome Powell said in a speech last month that “downside risks to employment are rising.” Investors anticipate that officials will lower interest rates by a quarter percentage point at their policy meeting later this month.
The number of layoffs edged up to the highest since September and reflected more dismissals in construction. And hiring also picked up slightly, according to the JOLTS report. The number of vacancies per unemployed worker, a ratio Fed officials watch closely as a proxy of the balance between labor demand and supply, held at 1, hovering at the lowest level since 2021. At its peak in 2022, the ratio was 2 to 1. The so-called quits rate, which measures the percentage of people voluntarily leaving their jobs each month, was unchanged at 2%. Some economists have questioned the validity of the JOLTS data, in part due to the survey’s low response rate and sometimes sizable revisions. A separate index by job-posting site Indeed, which is reported on a daily basis, showed openings declined in early July before picking back up later in the month.
US economic activity saw “little or no change” across most of the country in recent weeks, the Federal Reserve said in its Beige Book survey of regional business contacts. To quote fully, “Most of the twelve Federal Reserve districts reported little or no change in economic activity since the prior Beige Book period,” according to the report published Wednesday. “Across districts, contacts reported flat to declining consumer spending because, for many households, wages were failing to keep up with rising prices.” Every region saw price increases, with 10 of the 12 reporting “moderate or modest” inflation and two seeing “strong input price growth,” the Beige Book said. “Nearly all districts noted tariff-related price increases, with contacts from many districts reporting that tariffs were especially impactful on the prices of inputs,” according to the report. As tariffs make their way through the economy, businesses are raising prices to compensate, at least partially, for increasing costs. Fed officials are trying to balance the risk of inflation against concerns about the state of the job market, after revised data pointed to a sharp slowdown in hiring in recent months. “Eleven districts described little or no net change in overall employment levels, while one district described a modest decline,” the report said. The Philadelphia Fed compiled the latest edition of the Beige Book using information gathered on or before Aug. 25. The report includes commentary and anecdotes from business leaders and other contacts in each of the bank’s 12 regional districts. Fed officials will next gather Sept. 16-17 to decide on interest rates.
Applications for US unemployment benefits rose to the highest since June, adding to evidence that the labor market is cooling. Initial claims increased by 8,000 to 237,000 in the week ended Aug. 30. The median forecast in a Bloomberg survey of economists called for 230,000 applications. Continuing claims, a proxy for the number of people receiving benefits, were little changed at 1.94 million in the previous week, according to Labor Department data released Thursday. Companies have grown more hesitant about hiring while assessing the economic impact from President Donald Trump’s policies. Hiring plans fell to the weakest level for any August on record in data from outplacement firm Challenger, Gray & Christmas going back to 2009, while intended job cuts rose. The four-week moving average of new jobless claims, a metric that helps smooth out volatility, rose to 231,000, the highest since July. Before adjusting for seasonal factors, initial applications rose last week. Connecticut and Tennessee saw the largest increases.
Hiring at US firms slowed last month, according to SGK core holding firm ADP Research data released earlier Thursday. Private sector employment increased by 54,000 jobs in August and pay was up 4.4 percent year-over-year according to the August ADP National Employment Report® produced by ADP Research in collaboration with the Stanford Digital Economy Lab ("Stanford Lab"). The Bloomberg estimate was for a 75,000 increase in private sector employment. The ADP National Employment Report is an independent measure of the labor market based on the anonymized weekly payroll data of more than 26 million private-sector employees in the United States. ADP's Pay Insights captures nearly 14.8 million individual pay change observations each month. Together, the jobs report and pay insights use ADP's fine-grained data to provide a representative and high-frequency picture of the private-sector labor market. "The year started with strong job growth, but that momentum has been whipsawed by uncertainty," said Dr. Nela Richardson, chief economist, ADP. "A variety of things could explain the hiring slowdown, including labor shortages, skittish consumers, and AI disruptions."
Activity at US service providers expanded in August at the fastest pace in six months on the sharpest acceleration in orders in nearly a year. The Institute for Supply Management’s index of services rose 1.9 points last month to 52, the group said Thursday. Readings above 50 indicate expansion, and the figure topped all but one estimate in a Bloomberg survey of economists. The new orders index jumped 5.7 points, the most since September, to 56. The business activity index, which parallels the ISM’s factory output gauge, climbed to a five-month high of 55. The solid advance in those demand indicators suggests the largest part of the economy is gaining some traction after five straight months of sluggishness. At the same time, a measure of materials costs showed service providers continue to battle a stiff inflationary headwind. While the group’s prices-paid index eased, the August reading of 69.2 was the second-highest since late 2022 and showed the impact of tariffs. “Commentary once again was led by respondents’ increasing citations of tariff impacts, with some indication that business activity and imports are being driven by an attempt to get ahead of additional price increases while preparing for the holiday peak season,” Steve Miller, chair of the ISM Services Business Survey Committee, said in a statement. Twelve services industries expanded last month, led by information, wholesale trade and arts and entertainment.
The US trade deficit widened in July to a four-month high as companies raced to import goods and materials before President Donald Trump unveiled new tariffs on global trading partners. The goods and services trade gap grew nearly 33% from the prior month to $78.3 billion, Commerce Department data showed Thursday. The median estimate in a Bloomberg survey of economists called for a nearly $78 billion deficit. The value of imports increased 5.9% in July, the most since the start of the year, while exports edged up. The figures aren’t adjusted for inflation. The surge in imports was driven by inbound shipments of industrial supplies, which rose to the highest level in four months. Imports of consumer goods also climbed, and incoming shipments of capital equipment excluding autos advanced by the most since the start of the year. The report illustrates a rush by US companies to secure more goods before so-called reciprocal tariff rates were anticipated to take effect for a slew of countries that hadn’t yet reached trade deals with the US. Imports had fallen for three straight months after a massive first-quarter surge driven by businesses trying to front-run the president’s April 2 tariff announcement.
Interest Rate Insight and the Fed
Federal Reserve Governor Christopher Waller said the US central bank should begin lowering interest rates this month and make multiple cuts in the coming months, adding that officials could debate the precise pace of reductions. “We need to start cutting rates at the next meeting, and then we don’t have to go in a locked sequence of steps,” Waller said Wednesday in an interview with CNBC. “We can kind of see where things are going, because people are still worried about tariff inflation. I’m not, but everybody else is.” Fed officials are widely expected to cut rates at their Sept. 16-17 meeting, even as they continue to grapple with the economic impact of tariffs. The levies have boosted inflation in recent months, while hiring has seen a sharp deceleration, to the slowest pace since 2020. Waller, who is a contender to succeed Jerome Powell as Fed chair, dissented against the central bank’s decision in July to hold rates steady in favor of a quarter-point cut. On Wednesday, he said inflation is likely to move “much closer” to the bank’s goal beginning in six or seven months, once the impact of tariffs starts to fade. In that scenario, the Fed should aim to get ahead of a sharp slowdown in the job market, “because usually when the labor market turns bad, it turns bad fast,” Waller said. He added that he believes the Fed’s benchmark is currently above the neutral rate, meaning monetary policy is restricting the economy. “We kind of know we want to get toward neutral,” he said. “We know roughly how much you might want to cut — say 100, 150 basis points. But how fast we get there is going to depend on the data that comes in.”
Federal Reserve Bank of Atlanta President Raphael Bostic reiterated he sees one interest-rate cut as appropriate for this year, though that could change based on what happens with inflation and the labor market. “I believe that, while price stability remains the primary concern, the labor market is slowing enough that some easing in policy — probably on the order of 25 basis points — will be appropriate over the remainder of this year,” Bostic wrote in an essay published Wednesday morning. “That could change, depending on the trajectory of inflation and the evolution of employment markets in the coming months.” Fed officials are expected to lower borrowing costs for the first time this year when they meet in two weeks. They have held their benchmark rate steady since December on concerns that President Donald Trump’s tariffs could reignite inflation. But a substantial slowdown in monthly job growth has some officials saying they may need to act to support the labor market before they have full clarity on the inflation outlook. In his essay Wednesday, Bostic said interest rates are still “marginally restrictive.” He said the risks to the Fed’s dual mandates on prices and employment have become more balanced as the labor market has softened, but he expressed skepticism about the idea that the labor market is deteriorating. “I do not think it is unambiguously clear that the labor market is weakening materially relative to our mandated objectives,” he wrote, adding that the unemployment rate has remained relatively steady as labor supply has declined. That is potentially lowering the level of monthly job gains needed to keep the unemployment rate stable, he said.
Impactful International News
European Central Bank interest rates are firmly on hold for now and the next step could be a cut or hike, according to Primoz Dolenc, acting governor of Slovenia’s central bank. With Europe’s economy resilient and inflation stabilizing near 2%, Dolenc said he doesn’t see “major shifts in any direction” to justify changing borrowing costs this month. “Beyond September, we should wait and see how monetary policy works — what are the data, what are the projections — and then decide,” he said Tuesday in an interview in Ljubljana. “And that could go in either direction.” The ECB is widely expected to keep its deposit rate at 2% on Sept. 11, having refrained from lowering it in July following eight quarter-point cuts. Most officials are happy with current policy settings and investors reckon the cutting cycle may be over. Executive Board member Isabel Schnabel sees no reason for further cuts at present, and reckons rate hikes globally may begin sooner than currently anticipated, Reuters reported. Not everyone agrees, however. Lithuania’s Gediminas Simkus has signaled that a reduction in borrowing costs is possible in December, with “many forces” pointing to lower future inflation. Much will depend on next week’s new quarterly forecasts, which last time around showed consumer-price gains at 2% in 2027 following a deviation below target next year. Dolenc, who attends ECB Governing Council meetings without voting rights, considers that data since June have been more or less in line with expectations, meaning the outlook shouldn’t budge much. “I don’t see any reasons for major revisions to the projections — at least not on inflation,” he said. Underlying pressures are also heading toward 2%, “so from this point, we are optimistic,” he said. The economy, meanwhile, has seen confidence improve and a years-long manufacturing slump near its end — despite the turmoil over trade that resulted in the European Union accepting tariffs of 15% on nearly all shipments to the US. That levy — a touch higher than the ECB anticipated — “might slightly affect economic activity because higher tariffs might mean less exports,” Dolenc said. “But there is also a positive factor now compared to June. The trade deal reduced uncertainty, which could affect economic activity positively.”
China’s services activity expanded at the fastest pace in over a year in August, a private survey showed, as the summer travel season powered demand during what has otherwise been a relatively weak stretch for domestic consumption. The RatingDog China services purchasing managers’ index rose to 53 from 52.6 in July, according to a statement published Wednesday by RatingDog and S&P Global. It was the highest reading since May 2024, and it topped the 52.5 median forecast of economists surveyed by Bloomberg. Any reading above 50 indicates an expansion. Summer is typically a peak season for services such as tourism and entertainment. But China’s consumer sentiment has stagnated of late, with people’s view of the jobs market falling to the worst on record in the second quarter. “The performance of the service sector in August was quite notable,” Yao Yu, founder of RatingDog Shenzhen Information Technology Co, said in a statement. “However, the persistent pressure on output prices, and thereby profits, suggests that the service sector recovery may be imbalanced.” New business orders expanded at the fastest rate since May 2024, with companies attributing the improvement to increased tourism and better market conditions, according to the statement. But output prices declined slightly after rising in July, even as input costs increased amid intense market competition. That shows companies weren’t able to pass on rising costs to customers, leading to more pressure on profit margins, the statement shows. “Profit margins have been under continuous pressure since November 2023, with no significant relief to date,” Yao said. Stronger services drove an improvement in the official measure of non-manufacturing activity in August, which rose to 50.3 from 50.1 in July. The official services PMI increased to the highest this year. China’s economic momentum still appears weak, as a government crackdown on price wars weighs on production, while a worsening downturn in the housing market is exerting an additional drag on activity. Home sales extended their slump in August, making it one of the weakest months on record, even as prices declined. The PMI readings indicate changes compared to the previous month reported by survey respondents.
Mark Carney said Canada and the US are in negotiations to resolve issues in tariff-hit sectors after a “very constructive” conversation with President Donald Trump on Monday evening. The Canadian prime minister said more meetings are taking place in Washington involving officials including Michael Sabia, Canada’s top civil servant. “We are expecting agreements in some of the strategic sectors,” Carney told reporters Wednesday in Toronto, referring to industries that have been targeted by US tariffs such as autos, steel and aluminum. But he also cautioned that a deal might not happen quickly. “Don’t expect immediate white smoke on one of these strategic sectors, but that’s the type of conversation that we’re having.” Carney’s Monday call with Trump was not previously known, as neither his office nor the White House issued a readout afterward. Trump raised some tariffs on Canada to 35% from 25% on Aug. 1, but he kept in place an exception for a broad range of products that are traded under the US-Mexico-Canada Agreement. Carney defended his country’s competitive position, arguing that the exemption gives Canada a blended tariff rate of about 5.5%, “the lowest average tariff of any country in the world.” Many of Trump’s tariffs are under a legal cloud after a US court declared them illegal on Aug. 29. But they’re still in place and the administration is attempting to get the US Supreme Court to back his tariff powers. Carney also said the government is looking for ways to resolve trade frictions with Canada’s second-largest trading partner, China, which imposed punishing tariffs on food items such as canola and pork after Canada placed tariffs on Chinese electric vehicles.
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