The U.S. economy added 142,000 jobs in August. What does that mean for interest rates and you?

(CNN) – The U.S. labor market rebounded in August, allaying recession fears sparked by a surprisingly weak jobs report the previous month.

The unemployment rate fell from 4.3% to 4.2%.

Economists had expected a net increase of 160,000 jobs and the unemployment rate to actually fall to 4.2%, according to FactSet consensus estimates.

The August total is in line with the job growth seen over the past three months. But it is significantly lower than the average monthly increase of 202,000 over the past 12 months.

The labor market has cooled considerably over the past year — an entirely expected development as the supply and demand for workers become more balanced after the seismic shock of the Covid-19 pandemic — but concerns have grown in recent months that job growth might not just slow, but deteriorate.

The surprisingly weak July jobs report fueled fears that the labor market was collapsing, potentially tipping the economy into a recession.

Although July earnings were revised down further and June earnings fell by 61,000 to 118,000, the August report was comparatively solid and stronger.

However, given the revisions and the fact that the August monthly total was below expectations, Friday’s report still fails to provide a clear signal on the outlook for the labor market or the economy.

“Today’s jobs report shows that the great waiting game has continued this summer, with employers and workers alike awaiting evidence of improvement in the face of forecast speculation,” said Becky Frankiewicz, president of ManpowerGroup North America.

The U.S. labor market rebounded in August, but hiring was much weaker in June and July than initially believed.

The U.S. economy created just 89,000 jobs in July, the weakest since the last full month of the Trump administration. And that’s on top of historical revisions that found the economy created more than 800,000 fewer jobs between mid-2023 and mid-2024 than previously reported.

So what do we do with this?

Friday’s important jobs report shows that the US labor market is doing well. There is no need to hit the panic button. We are not in a recession. The US is still creating a good number of jobs.

But it also shows that the labor market is showing signs of strain. The average number of jobs created by the U.S. economy has fallen in each year of the Biden administration: from 604,000 in 2021 to 377,000 in 2022 to 251,000 in 2023, and down to the sub-200,000 level where we now find ourselves.

Much of this is normal business as usual: the economy is slowing because it can’t keep up with the hiring pace of the post-pandemic boom.

High interest rates have also slowed inflation, but also hiring. Concern about the slowing economy has made employers think twice and are cutting back on hiring. Fewer workers are leaving their jobs for fear of not finding another.

All of this means that the labor market remains on a knife edge: The Federal Reserve will begin cutting interest rates in a couple of weeks to help boost the economy. But we are just one or two bad jobs reports away from a very different narrative about the state of the U.S. economy.