U.S. unemployment rate hits three-year high

by / ⠀News / August 7, 2024
Unemployment High

The U.S. unemployment rate rose to 4.3% in July, a three-year high. This increase comes after the Federal Reserve kept interest rates near a 25-year high earlier in the week. Employers added just 114,000 jobs in July, compared to the 175,000 expected by economists.

Wage growth also slowed, with average hourly earnings logging the weakest annual rate since May 2021. The rise in unemployment has triggered the “Sahm rule,” a recession indicator developed by economist Claudia Sahm.

The rule suggests that when the three-month average unemployment rate rises by 0.5 percentage points from its lowest point in the past 12 months, it signals early signs of a recession.

Since January, the rate has risen by 0.6 percentage points. However, some economists believe that the unusual post-pandemic conditions make conventional wisdom less useful.

Unemployment rises amid economic concerns

Fed Chair Jerome Powell expressed hesitance to label the current situation as a recession, and some believe the U.S. may still achieve a “soft landing.”

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The disappointing jobs report caused all three major stock indices to drop significantly. The Dow closed 612 points lower, the Nasdaq Composite shed 2.4%, and the S&P 500 declined 1.8%. Consumer spending accounts for about 70% of the U.S. economy and is closely tied to the job market’s health.

If layoffs increase, it could spell more significant problems for the economy. Despite the concerns, there is a silver lining. The weak July jobs report has increased the likelihood that the Fed will begin lowering interest rates as soon as September.

Lower rates would reduce borrowing costs for mortgages, car loans, and credit cards, potentially relieving consumers. Analysts at Citigroup and JPMorgan now expect a rate cut by half a point in both September and November. The following jobs report before the Fed’s September meeting will be crucial in determining the next steps for monetary policy.

About The Author

Kimberly Zhang

Editor in Chief of Under30CEO. I have a passion for helping educate the next generation of leaders. MBA from Graduate School of Business. Former tech startup founder. Regular speaker at entrepreneurship conferences and events.

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