Rising risk for U.S. economy: A job market that is just 'meh'

More people are spending more time looking for jobs, enduring unemployment stretches of at least half a year

- Justin Lahart

The labor market has moved front and center for the Federal Reserve, highlighting its fragility and risk to the economy. The good news is that unemployment remains low, and employers haven't been all that interested in laying people off. The bad news is that companies haven't been all that interested in hiring, either.

This precarious situation means even a relatively small increase in layoffs could lead the economy to start shedding jobs—a process that can be difficult to reverse once it starts.

Worries about this possibility have come to the fore at the Fed, especially after revisions included in the July employment report showed much weaker job growth in recent months than previously thought.

This is why, while inflation is above the Fed's 2% target, Fed Chair Jerome Powell on Friday signaled the central bank's policymakers could cut rates when they meet next month.

Powell characterized the labor market environment as "curious," with the shrunken supply of workers because of immigration restrictions counteracting the effects of reduced demand, and leaving unemployment relatively low as a result. But within that uneasy balance, Powell said the risks of a deteriorating jobs market are rising.

"And if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment," he said.