What we know about the labor market, even without Jobs Friday data

Jobs week ended with an eerie silence, as the government remains shut down and we didn’t receive the last two major reports for the week. Given that job growth has been slowing dramatically this year, it’s time to examine what is really going on. 

For me, the situation is straightforward: over the past 24 months, the labor market has been softening but has not yet fully broken. The Federal Reserve still needs to see a significant downturn in the labor market and more Americans losing their jobs before it considers adopting a more dovish stance. 

As a case in point, Chicago Fed President Austin Goolsbee said this morning that he is “a little wary about front-loading too many rate cuts.”

Dallas Fed President Lorie Logan also said this week:  “We need to be very cautious about rate cuts,” and the Fed “must not ease too much, only to have to reverse course.”

So let’s take a look at the labor market data on what we do have.

What’s the main reason for job weakness? 

The Federal Reserve claims that, because labor force growth has slowed significantly, with fewer people seeking employment this year, this is why the jobs data is worse in 2025. In fact, Fed Chair Jerome Powell stated on live TV that job growth of zero to 50,000 is now acceptable. Because labor force growth has cooled significantly, this is the primary reason the unemployment rate is closer to 4% today instead of 5%.
For 2025, I discussed that the unemployment rate would rise above the Fed’s comfort level of 4.3%, as the labor market has been softening since 2023. However, the only thing that could prevent this is for labor force growth to cool off, thereby preventing the unemployment rate from rising faster.

Now, although the unemployment rate is higher in 2025, if we had experienced the same type of labor force growth in 2024, we would be closer to 5% than 4% because the labor market is cooling off, and sectors of the economy are shedding jobs. Here are the sectors that are shedding jobs.

Manufacturing jobs

Manufacturing jobs have been losing positions since late 2022. Although the size of the job losses isn’t massive, this decline isn’t simply due to slowing population growth; it has persisted for years. It’s challenging to say this is due to a lack of labor force growth when the Fed said that the Job data was strong in 2023 due to labor force growth.

Residential construction jobs

It’s no secret that jobs are being lost in the housing construction sector. Now, thankfully, the bond market is operating on the labor-over-inflation model, driving long-term yields lower, which in turn lowered mortgage rates. However, with housing permits at COVID-19 recession levels and completed units of sale at a 14-year high, it’s not shocking that jobs are being lost here.

The job losses in residential construction labor in the chart below are minor. Still, as you can see, when this data line breaks, it’s never a good sign for the general economy, and traditionally, the Fed doesn’t really care about this until it’s too late. Again, it’s a positive that mortgage rates are near 6% again.

Jobless claims data is softer but not breaking

Since 2022, when I introduced the topic of labor in relation to inflation, my stance has been that we shouldn’t start discussing a recession until the four-week moving average of jobless claims approaches 323,000. We haven’t reached that point yet, and there hasn’t been a significant breakout in the data over the past few years. 

Continuing claims, on the other hand, have hit a three-year high, which means it’s harder to find work if you’re unemployed. Usually, the Fed would concerned about this, but I believe their primary trigger of concern is the initial jobless claims data breaking higher.

Job openings data

Now, the job openings data is a favorite of mine — and the Fed. However, many people dislike it because they believe that a significant number of job opening posts are fake. However, it has correlated with the softer labor market, as job openings have decreased from 12 million to close to 7 million. We have slightly more unemployed workers. This means that this doesn’t have to do with population growth; the labor market is simply much softer today, but not breaking.

The subcomponents of the job openings data released Tuesday are very soft, with hiring and quits at low levels. However, the layoff portion of the job openings report remains low, indicating a softer trend, rather than a break. The slowdown has been significant in 2025, and this data includes a few adverse reports for that year.

Conclusion

Let’s keep it straightforward: the labor market is softer but not collapsing and we can know this even without the jobs Friday data. A collapsing labor market would involve several months of job losses and a surge in jobless claims. Currently, GDP growth for this quarter is still over 3%, and stock prices are near all-time highs. Additionally, the consumption part of GDP, which the Fed closely monitors, remains strong. As long as people continue to purchase goods and services, this economic expansion can continue to progress. However, what I shared in this article gives a glimpse of the recent job data as we await further data from the government.