August job growth was dominated again by government spending.

It’s been a bad September so far for financial markets, and Friday’s jobs report for August didn’t help. The Labor Department’s monthly surveys showed a continuing slowdown in the labor market, and much of the job growth continued to be fueled by government spending. Employers added 142,000 jobs in the month, while job growth for June and July was revised down by 86,000. Jobs have increased by about 116,000 a month this summer, about half the rate over the last 12 months. August continued the trend that half of the new jobs were in government, or in healthcare and social assistance that are heavily funded by government. Employers shed jobs in manufacturing (24,000), retail (11,100) and information (7,000). Some of last month’s job growth is also likely a rebound from July when storms in the South caused power outages and shuttered businesses. After jumping by 249,000 in July, temporary layoffs fell 190,000 in August. A worrisome sign: Teen unemployment rose to 14.1% from 12.4% in July and a recent low of 9.3% in April 2023. One point of good news is that unemployment ticked down 0.1 percentage points to 4.2% as the labor force expanded by 120,000. Average hourly wages also increased by 0.4%, which is no doubt welcome for workers who have been squeezed by inflation. But the report overall adds to a cloudy economic picture.

The job news probably locks in the Federal Reserve’s much-advertised rate cut of 25 basis points this month, though perhaps not the 50 points investors are begging for. We’d err on the cautious side given that inflation continues to be above the Fed’s target.

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