US Job Growth Expected to Rebound in August as Labour Market Remains Weak

U.S. job growth is expected to have rebounded in August after a decline in July, but economists say the recovery may be limited by labour market disruptions linked to the termination of Temporary Protected Status for Haitian immigrants.

The Labor Department’s closely watched employment report is expected to show that the labour market remains in a “slow hire, slow fire” phase, with the unemployment rate forecast to have remained at 4.1%.

Nonfarm payrolls are expected to have increased by 56,000 jobs in August after falling by 23,000 in July, according to a Reuters survey of economists. Forecasts ranged from a decline of 25,000 jobs to an increase of 121,000.

Economists expect some of the July weakness to have reversed, particularly after local government education employment fell by nearly 49,600 jobs in July. A recovery in leisure and hospitality employment could also support August payrolls after the sector lost jobs for two consecutive months.

However, the termination of Temporary Protected Status for hundreds of thousands of Haitian immigrants could weigh on employment figures. Some economists estimate the policy could reduce August payrolls by about 15,000 jobs, although the impact could be significantly larger.

The labour market has lost momentum after a strong start to the year, with economists pointing to higher oil and fuel prices, supply chain disruptions and uncertainty linked to the U.S. led conflict with Iran. Earlier weakness was also attributed partly to the impact of U.S. import tariffs.

Immigration restrictions and retirements have also reduced the growth of the U.S. labour force. Economists estimate that the economy may now need to create between zero and 50,000 jobs a month to keep pace with growth in the working age population, compared with a much higher figure when immigration was stronger.

The reduced labour supply has helped keep unemployment relatively low, although some economists expect the jobless rate to rise to 4.2%. Labour force participation has fallen by about one percentage point since the beginning of the year, reflecting slower population growth, an ageing population, increased retirements and lower immigration.

The August employment report is unlikely to significantly influence the Federal Reserve’s September 15 to 16 interest rate decision unless it shows a major surprise. Policymakers are expected to focus more closely on next week’s inflation data. Annual wage growth is forecast to have slowed to 3.0% in August from 3.2% in July.

Higher Treasury yields have already tightened financial conditions, with the average 30 year fixed mortgage rate reaching 6.71%, its highest level in more than a year. Economists warn that elevated borrowing costs could further weaken the housing market and slow economic growth.