The U.S. labor market has shown a clear slowdown recently, with data showing a slowdown in hiring and an increase in layoffs. This change could have a significant impact on the Federal Reserve's monetary policy decisions in the coming months.

Private sector hiring slows

According to ADP, the private sector added just 99,000 jobs in August, the lowest rate of growth since January 2021, well below the 140,000 expected by Dow Jones and significantly lower than the downwardly revised 111,000 jobs added in July.

The hiring slowdown was particularly pronounced in specific industries:

• Professional and business services lost 16,000 jobs
• Manufacturing lost 8,000 jobs
• Information services lost 4,000 jobs

However, some industries continued to grow:

• Education and health services added 29,000 jobs
• Construction added 27,000 jobs
• Finance added 18,000 jobs

Layoffs on the rise

The hiring slowdown was accompanied by a significant increase in layoffs. According to Challenger, Gray & Christmas, the number of layoffs in August reached its highest monthly level in 15 years. The tech sector was particularly hard hit, announcing 41,800 layoffs, the highest level in 20 months.

Productivity and Labor Costs

A separate report released by the U.S. Bureau of Labor Statistics showed that labor productivity in the nonfarm business sector increased by 2.5 percent in the second quarter of 2024. Meanwhile, unit labor costs rose a modest 0.4%, reflecting a 3.0% increase in hourly compensation partially offset by productivity gains.

Initial Jobless Claims

The latest initial claims for unemployment benefits showed a slight improvement, with 227,000 claims in the latest week, below the 230,000 expected. However, the figure remains above the historical average.

Market Expectations

The cooling labor market could impact the Fed's upcoming policy meeting. The market currently expects the Fed to cut interest rates by at least 0.25 percentage points at its September meeting and anticipates that a cumulative 1-percentage-point cut could occur by the end of 2024.

This change in the labor market, combined with other economic indicators, suggests a more cautious outlook for the U.S. economy in the near term. Investors and businesses should prepare for possible market volatility, and the upcoming non-farm payrolls report in the coming weeks will be key in confirming or challenging this trend or triggering significant market volatility.