The U.S. job market is experiencing a slowdown, but it's not yet a cause for concern, according to an economist.

• Although employers added fewer jobs than expected in August, the unemployment rate still decreased to 4.2%, as reported by the Bureau of Labor Statistics.
• Over the past year, the U.S. job market has seen a significant slowdown, while the Federal Reserve has increased interest rates in an effort to control inflation.
• If the labor market remains unhealthy, the economy may face a recession, according to economists.

The job market in the U.S. is experiencing a decline at a concerning pace, but it is not severe enough to cause alarm just yet, according to economists.

The focus of their attention is on the movement of significant labor-market indicators, including unemployment, job expansion, and recruitment.

Historically strong barometers have gradually weakened due to the Federal Reserve raising interest rates to cool the economy and reduce inflation.

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If the labor market continues to slow down at its current rate, there is a possibility of a recession, economists warned.

Nick Bunker, economic research director for North America at Indeed, stated that we are currently following a path that is not a three-alarm fire.

If the decline doesn't subside soon, a gentle economic landing may not be possible: "We're going to land, but it's going to land with a thud."

Why there's 'slowing momentum'

The Bureau of Labor Statistics reported on Friday that employers added 142,000 jobs in August, which was below the anticipated number.

The bad news: Despite the slight decrease in the unemployment rate to 4.2% from 4.3% in July, the number of jobs added in August was only 72,000, which is a decrease from the 89,000 jobs added in July.

Ernie Tedeschi, director of economics at the Yale Budget Lab and former chief economist of the White House Council of Economic Advisers under the Biden administration, stated that several metrics indicate a slowing labor market momentum.

Although the current level of job growth and unemployment is suitable for the U.S. economy to sustain over a long period, other data do not assure us that we will remain at this level.

The unemployment rate has steadily risen from 3.4% in April 2023 to 4.2% in May 2023.

Since 2014, the slowest pace of hiring by employers has been observed, according to data from the Labor Department released this week.

The growth of private-sector jobs outside of healthcare and social assistance has been unusually slow, with an average of 39,000 jobs added in the past three months, compared to 79,000 in the past year and 137,000 from 2015 to 2019, according to Julia Pollak, chief economist at ZipRecruiter.

Since 2018, the lowest rate of workers quitting their jobs has been recorded, coinciding with the lowest number of job openings since January 2021. Quits serve as an indicator of workers' confidence in their ability to secure a new job.

The number of job-finding among unemployed workers remains at 2017 levels and is steadily declining, according to Bunker.

Tedeschi stated that the strong labor-market momentum observed in 2022 and 2023 has significantly slowed down.

While data points are not necessarily concerning or at recessionary levels yet, they are softer and may be preludes to a recession.

Why layoff data is a silver lining

However, there is some room for optimism, economists said.

Tedeschi stated that permanent layoffs, often viewed as a harbinger of recessions, have not significantly decreased.

Employers are retaining their workers, as indicated by federal data on unemployment insurance claims and layoff rates.

The increase in unemployment is not due to layoffs, but rather to a surge in labor supply, as more Americans entered the job market and are counted as unemployed until they find work.

"Tedeschi stated that if layoffs begin, it signals the end of the game and a recession, but this has not occurred yet."

According to Bunker, the recent past has seen a more challenging job hunt for job seekers.

Relief from the Fed won't come quickly

It is anticipated that Federal Reserve officials will reduce interest rates during their upcoming meeting this month, thereby relieving economic pressure.

Lower borrowing costs may encourage consumers to purchase homes and vehicles, and businesses to increase investments and hire more employees.

It would likely take several months for the relief to be felt throughout the economy, according to economists.

According to Paul Ashworth, chief North America economist at Capital Economics, the current picture suggests that the economy is still on track for a soft landing rather than a recession.