Wall Street Increasingly Turns Focus to U.S. Labor Market
For the past three-and-a-half years, the U.S. labor market has been in a gradual decline. In 2021, fueled by the post-pandemic recovery, the economy averaged a hefty 603,000 new jobs per month, according to the Department of Labor. In 2022, the monthly pace fell to 380,000 and then to 216,000 in 2023. Last year, the economy averaged 168,000 per month. So far this year, through August, the monthly average is just 75,000. In its recently released August Employment Report, the Department of Labor reported just 22,000 new jobs were added last month, well below Wall Street’s forecast of a 77,000 gain.
On Wednesday, the Department of Labor also revised lower by 911,000 the number of jobs the economy added for the 12-month period ending March 2025. The Department of Labor had initially estimated that 1.8 million jobs were created during this timeframe. Based on the revision, however, only about 889,000 jobs were actually created. This was the largest annual adjustment by the Department of Labor since 2009.
The decline in monthly job growth has manifest itself in a rising unemployment rate. In May 2023, the unemployment rate fell to a 55-year low of 3.4%. By December 2024, the rate had risen to 4.1%. In August, the unemployment rate jumped from 4.2% to 4.3%.
Of the 11 sectors of the economy tracked by the Department of Labor, just four reported monthly job gains in August. The 22,000 total jobs added last month were led by the Education & Health Services sector, which added 46,000 jobs. So far this year, the Education & Health Services sector has added 521,000 new jobs. That accounts for 87.1% of the total 598,000 new jobs the economy has added this year.
The sector with the largest monthly decline in August was Professional & Business Services, which lost 17,000 jobs last month. Year-to-date, the sector with the largest decline has been Federal Employees Excluding Postal Workers, which has lost 87,600 jobs this year. Since his reelection, one of President Trump’s initiatives has been to reduce the size and scope of the federal workforce.
Finally, the economy is also seeing a decline in the number of unfilled job openings. Based on the latest Job Openings & Labor Turnover Survey, the Department of Labor reports there are currently 7.18 million job openings across the nation. This is a five-year low and down from the 7.8 million job openings the economy averaged throughout 2024. During the height of the post-pandemic labor shortage in 2022, the number of job openings soared to a record-high of 12.1 million.
Despite the weakness, the current unemployment rate of 4.3% is not a sign of severe distress or strain within the labor market. Since 2000, the average national unemployment rate is around 5.7%. But how much more will it continue to weaken?
Currently, the U.S. Federal Reserve expects the unemployment rate to tick higher to 4.4% by the end of the year. By the end of 2026, the rate is projected to ebb slightly lower to 4.3%. It’s certainly not doom-and-gloom. But it is one thing that Wall Street – as well as all Americans – will be keeping a close eye on in the upcoming months.
Mark M. Grywacheski, Investment Advisor
Quad Cities Investment Group is a Registered Investment Adviser.
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