Employment report to help Federal Reserve decide how much to cut interest rates

Either outcome could also help shape the remaining two months of the presidential race. Another sluggish jobs report would fuel former President Donald Trump’s claims that the Biden-Harris administration was overseeing a deteriorating economy.

A healthier report, however, would arm Vice President Kamala Harris with evidence that the job market is still expanding even as inflation has fallen from a 40-year peak to near the Fed’s 2% target, opening the door to rate cuts. The cuts in the Fed’s benchmark rate would ultimately lead to lower borrowing costs for a range of consumer and business loans, including mortgages, auto loans and credit cards.

The two presidential candidates outlined conflicting economic plans in speeches this week, with Trump promising to cut corporate taxes to 15% and eliminate taxes on tips and Social Security income. Harris has promised to expand tax deductions for startup companies while raising the corporate tax rate to 28%.

Economists expect the government to report Friday that employers created 160,000 jobs in August and that the unemployment rate fell to 4.2%. The rate has risen by almost a full percentage point since April last year, when it hit a half-century low of 3.4%.

But most of the increase in the unemployment rate reflects an influx of people into the labor force—especially recent immigrants and new college graduates—who didn’t find jobs right away and were counted as unemployed. That makes the rise in unemployment less worrisome than if it were caused by waves of job cuts. The pace of layoffs is actually barely higher than it was before the pandemic.

But slower hiring often precedes layoffs — one reason Federal Reserve policymakers are now more focused on keeping the labor market healthy than on continuing to fight inflation.

Recent economic data have been mixed, adding to the importance of the employment report, which is one of the more comprehensive snapshots of the economy issued by the government. The Labor Department surveys about 119,000 businesses and government agencies and 60,000 households each month to compile employment data.

The downside is that companies advertise fewer job openings, and fewer workers leave their jobs for new opportunities. In a healthy job market, workers are more likely to leave, usually for new, better-paying opportunities. With fewer departures, that means fewer jobs open up for the unemployed.

“New graduates and returning workers have a particularly difficult time breaking through,” said Daniel Zhao, chief economist at job site Glassdoor. “So it’s certainly worse for those people because they can’t get their foot in the door.”

The Fed’s Beige Book, a collection of anecdotes from 12 regional Fed banks, reported that many employers became more selective about whom they hired in July and August. And a Conference Board survey in August found that the percentage of Americans who say it’s hard to find a job is rising, which often correlates with higher unemployment rates.

At the same time, consumer spending, a key driver of U.S. economic growth, rose at a healthy pace in July. And the economy grew at a solid 3% annual rate in the April-June quarter.

Federal Reserve Chairman Jerome Powell has made clear that he does not want the labor market to weaken further, which is why an unusually weak jobs report could prompt the Federal Reserve to announce a deep interest rate cut this month.

On Friday, Christopher Waller, a member of the Fed’s Board of Governors, is scheduled to give a speech on the economic outlook at the University of Notre Dame. Waller, an influential member of the governing board, could provide insight into the Fed’s next steps.

Some labor market experts say the Federal Reserve’s significant interest rate cuts could prompt some companies to start hiring sooner.

“Everybody’s kind of in limbo,” said Becky Frankiewicz, president of North America at Manpower, the recruiting giant. “Everybody’s watching this mid-September meeting to get unstuck and start spending money.”