Economy adds disappointing 22,000 jobs in August, jobs report shows. Unemployment rises

U.S. hiring slowed further in August as President Donald Trump’s aggressive trade, immigration and federal layoff policies took a widening toll on a rapidly softening labor market.

Employers added a disappointing 22,000 jobs and the unemployment rate rose from 4.2% to 4.3%, the highest level since October 2021, the Bureau of Labor Statistics said Sept. 5.

Also worrisome: Payroll gains for June and July were revised down by a total 21,000 and now reveal the economy shed 13,000 jobs in June - the first job losses since the depths of the pandemic in December 2020.

The report would appear to cement a widely expected interest rate cut - the first since December - at the Federal Reserve's September 16-17 meeting, economists said.

Ahead of the report, economists surveyed by Bloomberg estimated that 75,000 jobs were added last month.

"August's employment report confirmed that the labor market has headed off a cliff-edge," economist Bradley Saunders of Capital Economics wrote in a note to clients.

How close is the US to a recession?

The employment survey was shaping up as one of the most closely watched in years. A ghastly July report revealed just 73,000 jobs were added that month and gains for the previous two months were revised down by a massive 258,000. The dismal showing left payroll additions averaging a measly 35,000 from May through July and led some economists to worry the nation could be hurtling toward a recession. After the August tally, the most recent three-month average has weakened further to just 29,000.

While few businesses are laying off workers, hiring has skidded below the pre-pandemic average, making it tough for employees who lose jobs to find new positions.

The brutal July performance prompted Trump to claim the numbers were “rigged” and take the unprecedented step of firing BLS Commissioner Erika McEntarfer. He has nominated as her replacement E.J. Antoni, a vocal BLS critic and chief economist of the conservative Heritage Foundation.

The move itself ironically has raised questions about the accuracy of the jobs data in August and coming months, but most economists have voiced confidence in the integrity of the numbers, which are compiled by hundreds of researchers.

Which industries are hiring the most right now?

Health care, a reliable jobs engine the past couple of years, again drove the payroll gains with 31,000.  And leisure and hospitality, which includes restaurants and bars, added 28,000. But professional and business services shed 17,000; manufacturing, which has been buffeted by the tariffs, lost 12,000 and is down 78,000 jobs this year, defying Trump's claims of a manufacturing revival as makers bring production back to the U.S. Construction lost 7,000 jobs.

The public sector lost 16,000 jobs, including 15,000 by the federal government, which is down 97,000 positions so far this year under the Trump administration’s massive federal layoffs.

How is the job market right now?

Although the August jobs numbers were highly anticipated, they may not serve as the final word on last month’s labor market. Initial readings of August payroll growth have fallen short of economists’ forecasts in 10 of the past 15 years, Goldman Sachs said in a research note. Subsequent revisions have upgraded the totals by a median of 61,000, the research firm said.

Will the Fed cut rates in September?

The feeble report all but confirms a Fed interest rate cut later this month and raises at least the possibility of a half point – rather than a typical quarter point - reduction, Saunders said. It also suggests the central bank may reduce rates by more than the two quarter point decreases officials forecast in June.

The ugly performance “implies further action will be required to stabilize the labor market before year end,” economist Samuel Tombs of Pantheon Macroeconomics wrote in a note to clients. Fed fund futures markets now anticipate quarter-point cuts at the Fed's three remaining meetings this year.

After the bleak July jobs report, Federal Reserve Chair Jerome Powell said “downside risks to employment are rising,” leading most economists to predict the central bank will lower its key interest rate at the mid-September meeting.

The Fed slashed the rate by a percentage point late last year but has since been on hold as officials assess how much Trump’s tariffs and immigration constraints will drive up inflation.

The Fed reduces rates to bolster a sagging economy and raises rates or keeps them higher for longer to curb inflation. Trump’s tariffs pose an unusual dilemma because they’re both pushing up prices and damping economic growth.

What is the current unemployment rate for Black people?

The weakening labor market is especially challenging minorities and other disadvantaged groups who struggle when fewer jobs are available.

The jobless rate for Black people jumped from 7.2% to 7.5%, highest in nearly four years, and it has surged from 6% in May.

Unemployment for Hispanic people climbed from 5% to 5.3%, highest since November.

What is the current US labor participation rate?

A small silver lining: Unemployment rose because the labor force – which generally has shrunk this year due to the immigration crackdown – added 436,000 workers. The labor force includes people working and job-hunting and a bigger supply of job seekers ultimately could help boost payroll growth.

That topped the additional 288,000 additional employed people in August, pushing up the unemployment rate. (A survey of households determines the unemployment rate and so the numbers differ from the widely reported 22,000 job gains, which is based on a survey of business and government work sites.)  

The labor force participation rate, the share of adults in the labor force, ticked up to 62.3% from a nearly three-year low of 62.2% in July.

Trump’s policies likely will continue to discourage hiring in the months ahead, forecasters say.

How do tariffs affect the labor market?

The president's sweeping tariffs could impose high double-digit import fees on countries that haven’t reached trade agreements with the U.S. while even those that have struck deals are paying relatively steep taxes of 10% to 20% An appeals court recently struck down the president’s country-specific tariffs but they remain in place for now and Trump has said the White House will appeal the ruling to the Supreme Court.

Over the past three months, manufacturing payrolls have declined an average 12,000 per month and the duties could continue to weigh on factory payrolls, Goldman said.

Broader business uncertainty over the levies also has slowed private-sector hiring generally. But Morgan Stanley said July’s pickup – compared to May and June - shows that tariff-related jitters may be easing.

“We do not expect that payroll growth is continuing to deteriorate,” as it did in the second quarter, Morgan Stanley wrote in a note to clients.

Other economists, however, worry the fees, which many companies have absorbed, will increasingly be passed along in consumer prices, hobbling consumption along with business profits and hiring.

Are federal employees still getting laid off?

The Trump administration is sharply cutting the federal workforce through layoffs, hiring freezes and buyouts. From January through July, the federal government has shed 97,000 workers.

A federal hiring freeze has been extended from July 15 to October 15. And more than 150,000 federal employees have accepted buyouts while tens of thousands more have been laid off. Just some of those layoffs have shown up in the monthly job numbers because they were being challenged in court. But the Supreme Court struck down that injunction in early July, and Goldman expected federal job cuts to more dramatically curtail the August payroll figures.

How will Trump's immigration policy affect the labor market?

Trump’s immigration crackdown – which includes deportations and stricter border enforcement - has crimped the supply of workers in industries such as agriculture, construction and hospitality. Job growth in such industries fell to an average 4,000 a month in the second quarter compared to an average 27,000 monthly in 2024, Goldman said.

Overall, the U.S. labor force has shrunk by 400,000 since January. And the labor force participation rate - the share of Americans working or looking for jobs - slid to 62.2% in July, the lowest since November 2022.

“This has shown no signs of letting up,” Capital Economics wrote in a note to clients.