By Lucia Mutikani

WASHINGTON- The US unemployment rate jumped to near a three-year high of 4.3 percent in July amid a significant slowdown in hiring, heightening fears the labor market was deteriorating and potentially making the economy vulnerable to a recession.

The increase in the unemployment rate from 4.1 percent in June marked the fourth straight monthly increase, the Labor Department reported on Friday.

Its rise from a five-decade low of 3.4 percent in April 2023 to now the highest level since September 2021 all but guarantees a September interest rate cut from the Federal Reserve, with economists calling for a 50 basis point reduction in borrowing costs. They argue that the US central bank is most likely behind the curve in easing monetary policy.

The sharp slowdown in the labor market had been flagged for a while in sentiment surveys and a rise in the number of people on unemployment benefits. The Fed’s rate hikes in 2022 and 2023 have weighed on demand for labor, with government data this week showing hires in June were the lowest in four years.

The employment report, which also showed the increase in annual wages last month was the smallest in more than three years, prompted some Wall Street institutions, including Bank of America Securities, to pull forward their rate cut expectations to September from December. Goldman Sachs now anticipates three rate cuts this year instead of only two before the data.

“If Fed officials had seen this report, they would have cut rates by 25 basis points this week,” said Brian Bethune, an economics professor at Boston College. “There is absolutely no justification for continuing to exert an elevated level of monetary restrictiveness on the economy.”

Nonfarm payrolls increased by 114,000 jobs last month, the Labor Department’s Bureau of Labor Statistics said. That was well below the 215,000 jobs per month added over the last 12 months, and the at least 200,000 that economists say are needed to keep up with growth in the population, accounting for the recent surge in immigration.

Economists polled by Reuters had forecast payrolls would advance by 175,000 jobs. The establishment survey, from which payrolls are counted, also showed the economy created 29,000 fewer jobs in May and June than previously reported.

The BLS said Hurricane Beryl, which slammed Texas during the survey week of the July employment report, had “no discernible effect” on the data.

The household survey, however, showed 436,000 people reported that they could not report to work because of bad weather last month, the highest on record for July. There were 249,000 people on temporary layoff last month.

The average workweek fell to 34.2 hours from 34.3 hours in June, also suggesting that Beryl had some impact on the labor market. But construction payrolls increased as did leisure and hospitality employment, which would weaken the weather argument.

The healthcare sector continued to lead employment gains, with payrolls rising by 55,000 jobs. Construction payrolls increased by 25,000 jobs, while leisure and hospitality added 23,000 positions.

Government employment rose by 17,000 jobs. There were also employment gains in the transportation and warehousing as well as social assistance sectors.

But information industry payrolls dropped 20,000 jobs. Financial activities lost jobs as did professional and business services, with temporary help services positions – a harbinger of future hiring – declining by a further 8,700.