Why this US jobs report is important and what you should watch – Nachrichten AG

If you're curious about the future of the US economy, mark your calendars next Friday. At 8:30 a.m. ET (1:30 p.m. BST), the US Department of Labor will release the results of its monthly surveys of employers and households. This report is one of the most important indicators of the health of the world's largest economy – and it comes at a critical time.

The US presidential election campaign, in which the economy was named as a key concern by voters, is in full swing. After the debates of recent years focused on inflation, attention has now increasingly turned to the labor market.

Surprises in the unemployment rate?

The Labor Department's latest report reported a 4.3% unemployment rate for July, up from 3.5% a year earlier, while job growth stalled. The news led to several days of turmoil in the stock market. If Friday's report reveals further cracks in the labor market, it would be bad news for Democrats, who have told the story of a healthy, if slowing, economy returning to sustainable growth.

Interestingly, the question of how much to worry about is still up for debate. In many cases, a rise in the unemployment rate signals a recession – but the forecasts are less clear this time. Factors such as a rise in immigration have complicated the picture. Other data suggest the rise in the unemployment rate is due to more people looking for work, rather than a sharp increase in layoffs. Friday's report will provide a crucial piece of the puzzle as voters' opinions solidify ahead of the November election.

Soft vs. hard landing

Republicans have seized on every piece of bad news – from falling stocks to lower growth numbers to declining investment and hiring – to argue that a change in political leadership in Washington is necessary. The unusual mix of forces at work has put Democrats partly on the defensive.

Two years ago, the U.S. central bank raised borrowing costs marginally in response to the fastest price increases since the 1980s. The Federal Reserve said the measures – which pushed the benchmark interest rate to a two-decade high of 5.3% – would help bring inflation under control. The way to do that was to curb business expansions and other large spending and ease the pressures that were driving up prices. Put more simply, the Fed is deliberately slowing the economy.

This often did not end well. Historically, a big jump in interest rates ended in a historic recession – and the stock market was nervous at any sign that the economy was heading for a “hard landing”. Donald Trump has stoked these fears and has been predicting an economic “crash” for months – especially if his opponent is elected.

Polls suggest that many Americans have believed the economy is in recession for years now – a grim assessment that is at odds with the country's 2.5% growth last year. Many analysts blame the inflation discrepancy, as households complain of price increases of nearly 20% in four years. But the urgency of that problem has diminished as wages rise and inflation eases, most recently to 2.9% – the slowest pace since March 2021.

This development has set the stage for the Fed's first rate cut in four years, which could lead to further financial relief: lower borrowing costs for mortgages, auto loans, credit cards and other forms of debt. Friday's jobs report will be crucial in determining the timing and size of the cut – and whether it could actually improve sentiment and help Democrats, as expected. Currently, most analysts expect a 0.25 percentage point cut, which would signal a continued, orderly slowdown.

But if the numbers raise concerns about the economy, a bigger cut may be needed — though a cut driven by a faltering economy and job losses is unlikely to benefit Democrats. Conversely, strong employment numbers could prompt the bank to rethink whether the economy is still overheating and a cut is even necessary. That has put the Harris campaign in a strange position — hoping for a good, but not stellar, jobs report.

In a widely watched speech last month, Federal Reserve Chairman Jerome Powell left his options open for the size of a potential rate cut. Friday's report may begin to close some doors.