Risks to U.S. Jobs Market Start to Emerge

Employment gauges in a fresh batch of regional Federal Reserve bank surveys are emblematic of the risks to the U.S. job market prompting the central bank’s turn toward interest rate reductions.

August indexes in each of the five recently released regional manufacturing reports show shrinking payrolls at factories, and gauges of employment at service providers are settling back. Measures of hours worked are also slipping.

The surveys are more a measure of industry sentiment rather than actual changes in employment. Still, in the wake of disappointing July job growth and separate data showing a huge downward revision in the level of March payrolls, they offer anecdotes of a moderation in the labor market that Fed Chair Jerome Powell indicated is front and center for policymakers.

In manufacturing, the Kansas City Fed’s index has shown three straight months of contracting employment for the first time since mid-2020, while the Richmond Fed’s gauge is the weakest since 2009 outside of the pandemic.

Within services and other non-manufacturing industries, an index of full-time employment in the Philadelphia Fed region shrank this month by the most in more than four years. The Richmond Fed’s employment gauge showed the first consecutive months of contraction since 2020.

While showing signs of stabilizing from a three-year slide, the Dallas Fed’s measure indicates employment at Texas service providers has effectively stagnated in the past two months. In New York state, the gauge eased in August for the first time since the start of the year.

Americans themselves are noting more limited employment opportunities. The share of consumers this month who said jobs are getting harder to come by rose to the highest since March 2021, according to a Conference Board report on Tuesday.

Factory workers are also experiencing a broad decline in hours worked, based on the regional surveys. In New York, manufacturing hours shrank by the most in more than a year. Indexes for Texas and the regions covered by Philadelphia and Kansas City also show extended periods of a declining workweek that raise the risk job cuts may follow.

According to the Kansas City Fed’s manufacturing survey, about a third of participating companies said they expect to hire fewer workers by the end of 2024 than they did at the start of the year, while half said their plans are unchanged.

One manufacturer in the region that includes Colorado, Kansas, Nebraska, Oklahoma, Wyoming, and parts of western Missouri and northern New Mexico said that “everything flipped in July. We got caught up and orders were pushed out at the same time. We laid off 30 percent of our hourly workforce last week.”

Another company in the area indicated: “Our industry is down by 20 to 35 percent, which is a challenge to our sales department and maintaining work for our employees.”

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