The three-month moving average for payroll gains dipped to 116,000 in August from 146,000 in July. That is within the margin of error for the survey and not significantly different than zero.

The unemployment rate ticked down to 4.2% in August from 4.3% in July. Temporary layoffs abated as workers returned to work following Hurricane Beryl. A record-breaking 461,000 workers were unable to work due to bad weather in July. More than a million households in Texas had to deal with floods and power outages during the week of the July employment survey.

The Bureau of Labor Statistics noted that the hurricane was not the sole reason for the weakness in July. We would not have even noticed the disruption if the underlying demand for workers had been more robust.

The “Sahm Rule,” an early recession indicator, was breached again in August. That raised another red flag for the Fed that it could risk waiting too long to cut and inadvertently trigger a full-blown recession. Unemployment tends to rise slowly, then rapidly, before it morphs into a vicious cycle of job and spending losses. That would be a larger problem for the Fed.

That is a point that San Francisco Fed President Mary Daly and Chicago Fed President Austan Goolsbee have stressed in recent weeks. “I’m going to try to put a really fine point on it,” Daly said prior to the release of the August employment report.

“I am watching it extremely carefully because any added slowing would be unwelcome. And we do not want to wait until we see it because then it’s too late,” she warned.

Goolsbee carried the argument further after the report’s release. “…[T]here are definite warning signs of things over-cooling,” he said.

He argued that the Fed would need a string of rate cuts to avoid a recession. However, he fell short of promising an outsized cut in September due to concerns of pushback against larger cuts by his colleagues.

Chart 1 lays out the pace of hiring in late July. It dipped to the lowest level since the onset of the pandemic. It is rapidly approaching levels more consistent with a recession than an expansion.

Three sectors – state and local governments, healthcare and social assistance, and leisure and hospitality – have accounted for more than 70% of the rise in employment since mid-2023. Those sectors suffered some of the largest declines in job openings in late July. That leaves us with less of a tailwind for employment gains going forward. (See Chart 2.)

The COVID-era stimulus and windfall revenue gains that enabled state and local governments to catch up on hiring post-pandemic have since dried up. Tight margins and financial stress in the healthcare sector are limiting hiring and leaving doctors’ offices short-staffed. The ranks of those out on vacation in August dropped to the lowest level for the month since August 2020. That will take the wind from the sails of hiring in leisure and hospitality.

The relay race, which passed the baton from the most to the least interest-rate sensitive sectors, is losing steam. That begs the question of which sector will drive employment gains and whether underlying demand will be enough to continue to absorb those entering the labor market.

More worrisome, the ratio of job openings to job seekers, which is a measure of worker leverage, dropped below the threshold hit prior to the pandemic in late July. That will intensify the downward pressure on wages. (See Chart 3.) Advertised wage gains have fallen back to pre-pandemic levels, while reports of cuts to entry-level wages are on the rise.

Alternative measures of unemployment, which include discouraged workers and those who could only find part-time instead of full-time jobs, have risen. The U6, as it is known, jumped from a low of 6.5% in December 2022 to 7.9% in August 2024. That is one-half percent more than the increase in overall unemployment. The ranks of those forced to accept part-time instead of full-time work due to economic reasons are at the highest level since May 2021.

Those who are categorized as “voluntary” part-time workers have also soared. However, voluntary part-timers include those who cannot work full-time due to childcare problems. That is not exactly voluntary and reveals the Catch-22 that many families face; they are forced to choose between caring and providing for their children.

The ranks who could not work due to childcare problems in August tied the highest level for the month on record. The other instance was August 2020, when many schools were still online.

Some deeper digging into the data reveals that about 90% of those most affected by the childcare crisis are women. Women of color are hit particularly hard, as they dominate the ranks of part-time workers.

This is at the same time that it is taking longer for those who lose jobs to find new jobs. The ranks of those who are unemployed for 15 weeks or longer have risen significantly over the last year.