Job Growth Stalls as U.S. Economy Faces Potential Recession
The U.S. job market is showing signs of distress, with only 22,000 jobs added in August 2023, according to the latest report from the Bureau of Labor Statistics. This minimal growth comes amid significant job losses across several industries, raising concerns about a potential economic downturn. The unemployment rate has also increased to 4.3%, its highest level in four years.
According to Mark Zandi, chief economist at Moody’s Analytics, the job market’s reliance on the healthcare and hospitality sectors is troubling. These two sectors accounted for nearly all job growth this year, with healthcare and social assistance adding 46,800 jobs and leisure and hospitality contributing an additional 28,000 jobs. Without these sectors, the economy would have recorded a net job loss, indicating a fragile labor market.
The report highlights a stark reality: less than half of the industries tracked by the Bureau of Labor Statistics have added to their payrolls in the past six months. Zandi pointed out that this phenomenon typically occurs during economic recessions. He noted that the diffusion index, which measures job growth across sectors, registered 49.6 in August, indicating more industries are cutting jobs than adding them. The three-month average stands even lower at 47.9.
Zandi has consistently warned about the risks facing the economy. Following disappointing job reports in July, he stated that the economy is on the precipice of recession. The downward revision of June’s job figures, which indicated a loss of 13,000 jobs, is particularly concerning as it marks a significant shift in employment trends.
Long-term unemployment is also rising, with over 6 million individuals outside the labor force expressing a desire to work, an increase from 5.7 million a year ago. Zandi emphasized the precarious state of employment, saying, “This really feels like a jobs recession. Employment is flat to down. Output and incomes are still growing, but the economy is incredibly vulnerable.”
Despite these troubling indicators, the economy remains in positive territory for now. The GDP expanded by 3.3% in the second quarter, and the Atlanta Federal Reserve’s GDP tracker predicts a 3% increase for the third quarter.
In response to concerns about a jobs recession, Scott Bessent, Treasury Secretary, defended the government’s economic policies during an interview on NBC’s Meet the Press. He asserted that initiatives are in place to create high-paying jobs and attributed August’s payroll data to historical tendencies for significant revisions. Bessent criticized the Federal Reserve for delaying interest rate cuts, arguing that faster action could have mitigated current economic challenges.
As the job market faces increasing scrutiny, the reliance on a limited number of sectors for growth raises alarms. The coming months will be critical in determining whether the U.S. can navigate these turbulent conditions or if a broader economic downturn is inevitable.
