US Labour Market Shows Signs of Strain Amid Policy Shifts

The US labour market is losing steam, with recent data painting a picture of rising jobless claims and sluggish hiring. According to Reuters, initial claims for unemployment benefits climbed to 237,000 for the week ending August 30, surpassing economists’ expectations of 230,000. Meanwhile, private payrolls grew by a mere 54,000 jobs in August, a sharp decline from July’s 106,000, as reported by the ADP National Employment Report. These figures, coupled with a government report showing more unemployed individuals than job openings in July for the first time since the COVID-19 pandemic, signal a cooling economy. This article explores the economic implications, policy drivers, and potential market impacts of these trends.

The slowdown in hiring has been linked to specific policy measures. “Job growth has shifted into stall-speed, with economists blaming President Donald Trump’s sweeping import tariffs and an immigration crackdown that is hampering hiring at construction sites and restaurants,” Reuters reported. These tariffs, which have pushed the US average tariff rate to its highest since 1934, have created uncertainty for businesses, leading to hesitancy in expanding headcount. Additionally, immigration restrictions have reduced labour availability in sectors like construction and hospitality, which rely heavily on migrant workers. The adoption of artificial intelligence (AI) is also reshaping the labour landscape, with firms citing AI-driven disruptions as a factor in reduced hiring. “We continue to see softness growing in the labor market as tariff policy uncertainty lingers, immigration changes take effect, and AI adoption grows,” said Eric Teal, chief investment officer at Comerica Wealth Management.

The labour market’s challenges are compounded by a widening trade deficit, which surged 32.5% to $78.3 billion in July, driven by a 5.9% jump in imports to $358.8 billion. The Commerce Department’s Bureau of Economic Analysis noted that capital goods imports hit a record $96.2 billion, boosted by demand for computers and industrial machinery. However, a recent US appeals court ruling declared most of Trump’s tariffs illegal, adding further uncertainty for businesses navigating trade policies. “Disruptions from tariffs are still making their rounds across the economy and increased uncertainty continues to be present in firms’ decision-making processes,” said Eugenio Aleman, chief economist at Raymond James. This trade volatility has distorted economic data, with trade subtracting 4.61 percentage points from GDP in Q1 before adding 4.95 points in Q2.

The softening labour market has heightened expectations for Federal Reserve action. “The slackening labor market likely positions the Federal Reserve to resume cutting interest rates later this month, though much would depend on August’s employment report to be published on Friday and consumer price data due next week,” Reuters noted. Fed Chair Jerome Powell has acknowledged rising labour market risks while highlighting persistent inflation concerns, with the benchmark interest rate steady at 4.25%–4.50% since December. Markets responded to the labour data with stocks trading higher, the US dollar rising against a basket of currencies, and Treasury yields falling, reflecting mixed sentiments about growth and policy expectations. Economists anticipate nonfarm payrolls rose by 75,000 in August, with the unemployment rate ticking up to 4.3% from 4.2%.