US job market shows signs of softening ahead of September data release​

​Recent trends in the US job market

​The US job market has been showing subtle signs of softening, despite maintaining relatively strong overall numbers. In August, the unemployment rate dipped to 4.2%, partially reversing a July increase to 4.3% that had triggered the “Sahm Rule” recession indicator. This rule is activated when the three-month moving average of unemployment rises by 0.5% or more compared to its lowest point in the previous year. While job counts have continued to rise, much of the increase in unemployment has come from longer job searches for new labour force entrants, particularly younger workers, rather than widespread layoffs.

​Slowing job growth and changing labour market dynamics

​Recent data suggests a gradual cooling of the job market. The average increase in payroll employment over the last three months was 116,000, the lowest since early 2021. Additionally, the Bureau of Labor Statistics has indicated that payroll employment earlier this year may have been overcounted by about 818,000 jobs. Hiring demand has continued to slow, with job openings returning to pre-pandemic levels. Although layoffs remain low, they have been gradually increasing – a trend that is unusual outside of recessionary periods. Survey data also indicates that consumers are less confident in the job market than before, and wage growth has been decelerating.

​Expectations for the September jobs report

​Despite these softening indicators, analysts maintain a base case assumption that labour markets are normalizing rather than faltering. Predictions for the September jobs report include an increase in payroll employment of 147,000 and a slight uptick in the unemployment rate to 4.3%. While this unemployment rate would still be considered low by historical standards, it represents a 0.5 percentage point increase from a year ago. The gradual nature of these changes suggests a controlled adjustment rather than a sharp downturn.

​Factors influencing the job market outlook

​Several factors are expected to influence the job market’s trajectory in the coming months. The Federal Reserve’s (Fed) recent interest rate cut, while framed as a “recalibration” rather than an emergency measure, is anticipated to help limit economic headwinds in the year ahead. Additionally, the exceptionally large government budget deficit is helping to support demand in the US economy. However, it’s important to note that interest rates typically impact the economy with significant lags, so the full effects of recent policy changes may not be immediately apparent.

​Conclusion and future outlook

​As the job market continues to evolve, analysts will be closely monitoring upcoming data for any further signs of weakness. While the current trends suggest a gradual softening rather than a sharp decline, risks are tilted to the downside for both the labour market and Fed policy rates. The September jobs report will be crucial in providing further insight into these trends and may influence future economic policy decisions. As permanent layoffs in the US edge higher, policymakers and economists alike will be watching closely to determine whether this represents a temporary adjustment or the beginning of a more significant economic shift.