Market mayhem: America’s job market slump calls for a big rate cut by

livemint.com:

In markets and economics, you sometimes have to hold two thoughts in your head simultaneously—an important lesson now that the US unemployment rate has surged to its highest in nearly three years. First, the labour market probably isn’t quite as imperilled as the main figure suggests. Second, the speed at which it’s cooling ratchets up risks, and the Federal Reserve should entertain the possibility that it’ll need to cut rates by 0.5 percentage point in September.

A report showed that the joblessness rate rose to 4.3% in July from 4.1% the previous month, exceeding economists’ estimates. That’s still relatively low, but the speed of its rise over the past four months is a worry. A rule developed by Claudia Sahm shows that historically, the economy is already in a recession once the three-month average of the unemployment rate rises at least a half percentage point above its low in the past 12 months.

That has happened. The US labour market is cooling down at a pace that must leave monetary policymakers uncertain as to where things will stand in September, when they meet next. Non-farm payrolls still rose by 114,000 last month, but jobs need to grow by a modest amount just to keep pace with population and labour force growth.

The payrolls figure was down from a revised 179,000 a month earlier. In an economy in which labour market weakness tends to snowball, Fed policymakers surely must be on high alert after the latest statistics. Even modest upticks in unemployment can lead to reduced consumption, which can lead to weakness elsewhere in the economy.