The Federal Reserve appears all but certain to cut interest rates at its September meeting after a string of weak labor market indicators painted a picture of an economy losing steam, according to a report from Berkadia. The Bureau of Labor Statistics delivered another underwhelming performance last week, reporting that nonfarm payrolls increased by just 22,000 in August—well below the 75,000 economists had expected. The unemployment rate climbed to 4.3 percent, matching the highest levels of the current economic cycle and reinforcing concerns about a broader slowdown. Payrolls have also now come in under 100,000 for four consecutive months, marking the weakest stretch of employment growth since the pandemic. When accounting for revisions, employment growth over the past three months has averaged a meager 29,000—a figure that would have been alarming in any previous economic expansion.
June’s job creation was revised downward by 27,000, turning what was already a weak 14,000 gain into an outright loss of 13,000 jobs. These adjustments followed the sizable downward revisions seen in the previous month’s report, which were the largest since 2020 and prompted such controversy that they led to the dismissal of the Bureau of Labor Statistics commissioner.
Based on the report, the weakness extends beyond the headline numbers. The July Job Openings and Labor Turnover Survey (JOLTS) revealed a labor market undergoing a fundamental transformation. Job openings fell to 7.18 million, the lowest level in 10 months, while the ratio of job openings per unemployed worker dropped to 1:1—a metric closely watched by Federal Reserve officials as a gauge of labor market balance.
“The number of job openings per unemployed worker decreased to 1:1, hovering at the lowest level since 2021,” the Berkadia report noted, highlighting how dramatically conditions have shifted from the peak ratio of 2:1 seen in 2022.
This 1:1 ratio carries particular significance for monetary policy, as it suggests that labor market tightness is no longer contributing to inflationary pressures—a key consideration for Fed officials who have been wrestling with when to begin cutting rates without reigniting price growth.
The composition of job growth also revealed underlying economic stress. While healthcare and leisure and hospitality sectors provided most of the August gains—47,000 and 28,000 respectively—even these traditionally resilient areas showed signs of cooling. The healthcare sector’s increase marked “the smallest monthly increase since January 2022,” according to the report. Meanwhile, federal government employment fell by 15,000 in August and has declined by 97,000 since January, reflecting the ongoing impact of efficiency initiatives within the federal workforce.
The deteriorating labor market metrics have essentially forced the Federal Reserve’s hand. At the Jackson Hole Symposium, Fed Chair Jerome Powell had already hinted that continued labor market deterioration could prompt rate cuts, and Friday’s data provided exactly that justification. Financial markets have responded decisively to the shift in economic momentum. The 10-year Treasury yield has dropped nearly 20 basis points since Labor Day, and traders have dramatically increased their bets on multiple rate cuts through the end of the year.
“The odds of a third rate cut in 2025 increased significantly this week as traders prepared for a dramatic shift in monetary policy,” the Berkadia report stated.
The transformation from the post-pandemic labor shortage to today’s conditions represents one of the most rapid shifts in modern economic history. Companies that once struggled to find workers are now becoming “more cautious and selective with their hiring” as they attempt to navigate an uncertain economic landscape, particularly given questions about trade policy impacts. For the Federal Reserve, the data provides clear justification for beginning a new cycle of monetary easing. While inflation concerns haven’t entirely disappeared, the labor market’s weakness has tipped the balance toward supporting economic growth through lower interest rates. The September rate cut now appears to be a foregone conclusion. The more significant question facing policymakers and markets alike is how many cuts will follow and how quickly the Fed will need to act to prevent the labor market’s gradual cooling from becoming something more severe.
