Fresh data out Thursday is raising the question of whether the job market is weakening further — and that could cause the Federal Reserve to cut rates by more than a quarter percentage point when officials meet in less than two weeks.

ADP’s National Employment Report for August showed 99,000 jobs were added in the month, well below economists’ estimates for 145,000, and fewer than the 122,000 jobs added in July. The August data marked the fifth straight month payroll additions had slowed from the month prior. The release was the fewest jobs added from the private sector in a month since January 2021.

Meanwhile, weekly jobless claims clocked in at 227,000 for the week ended Aug. 31, compared with expectations for 230,000 — a level inconsistent with recession.

The mixed bag of jobs data, which shows cooling hiring but not firing, comes ahead of the all-important non-farm payroll number due out Friday, which will either reverse the weak July jobs report or confirm it.

Policymakers are wrestling with the question of whether a jump in the unemployment rate to 4.3% in July was due to exogenous factors like the impact of a Texas hurricane at the time, or whether it’s the start of a more worrisome trend.

Economists expect the job market to have rebounded in August, with estimates for 165,000 jobs, compared with 114,000 jobs in the month of July. Both are still below the average monthly gain of 215,000 over the prior 12 months. The unemployment rate is expected to tick down to 4.2% from 4.3%.

“Tomorrow’s payroll report could be softer than expected given the slowdown in ADP estimates,” said Jeffrey Roach, chief economist for LPL Financial. “If the payroll report surprises investors and comes in weaker than expected, the likelihood of a 50 basis point cut increases at the upcoming Fed meeting.”

The July jobs report sent markets into a tailspin, setting off recession fears and sparking questions of whether the Fed had waited too long to cut rates. Another weak jobs report could add to markets’ concerns, spurring more selling pressure.

The Fed, which was more focused on inflation over the past few years, is now turning its attention to a weakening job market as officials look to cut rates for the first time in four years this month.

“The current level of our policy rate gives us ample room to respond to any risks we may face, including the risk of unwelcome further weakening in labor market conditions,” Powell said in a speech in Jackson Hole, Wyo., on Aug. 23.

Read more: What the Fed rate decision means for bank accounts, CDs, loans, and credit cards

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Fed officials have said they’re looking at the full picture, not just one report.

When asked whether a weak jobs report for August would cause the Fed to cut by 50 basis points, Philadelphia Fed president Patrick Harker said, “Not just a weak jobs report, but weak jobs data. I’m firmly in the camp of not looking at any one number because we know these numbers can be revised. You have to look at all the data — claims, jobs transition, the soft data we’re hearing from employers.”

So-called soft data is showing cooling hiring as well, but not mass firings, similar to the official data.

The Fed’s Beige Book — a compilation of anecdotal evidence on the ground across the Fed’s regional districts— released Wednesday revealed employment levels were steady overall across the 12 Federal Reserve bank districts, though there were isolated reports that firms filled only necessary positions, reduced hours and shifts, or lowered overall employment levels through reductions. Still, reports of layoffs remained rare.

Employers were more selective with their hires and less likely to expand their workforces, citing concerns about demand and an uncertain economic outlook. Companies are feeling less pressure to increase wages as competition for workers has eased.

The Beige Book also revealed that consumer spending ticked down in most districts, having generally held steady during July.

Atlanta Fed president Raphael Bostic said Wednesday that the Fed needs to cut rates before inflation hits 2% lest the central bank “risk labor market disruptions that could inflict unnecessary pain and suffering.”

Still, Bostic said that while the job market “continues to weaken, it’s not weak.”

“I do not sense a looming crash or panic among business contacts,” Bostic said. “However, the data and our grassroots feedback describe an economy and labor market losing momentum.”

Traders are pricing in a nearly 60% chance the Fed cuts by 25 basis points in a few weeks. A much weaker jobs report on Friday would tip the scale toward a half-point cut.

EY chief economist Gregory Daco said while he believes the Fed is behind the curve when it comes to cutting rates, a 25 basis point rate cut seems more likely.

“It’s unclear that Powell will manage to convince a majority of policymakers to vote for a 50 basis point rate cut to start the easing cycle,” said Daco. “A larger cut would be an implicit admission that the Fed has made a policy mistake by not easing policy earlier.”

Jennifer Schonberger is a veteran financial journalist covering markets, the economy, and investing. At Yahoo Finance she covers the Federal Reserve, cryptocurrencies, and the intersection of business and politics. Follow her on X @Jenniferisms.

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