The U.S. labor market faces major headwinds as it faces massive decelerating growth. According to the Bureau of Labor Statistics, the economy added, on average, between 102,000 and 158,000 jobs per month through June. That’s great job growth for this entire stretch! At the same time, the unemployment rate is expected to increase slightly from 4.1% to 4.2%, according to consensus estimates from FactSet. Amidst the rapidly changing labor market, several trends are playing a hand in creating a more complicated space for job seekers.
Meanwhile, the average length of unemployment has increased to 23 weeks, indicating that many people will be jobless for weeks or months on end. The share of jobless workers looking for work for 27 weeks or longer has risen to 23.3%. This figure is approaching a three-year high. Continuing claims for unemployment benefits held firm at 1.946 million, still just above a nearly four-year high. Though we still see low levels of initial jobless claims, the stubbornness of continuing claims shows not all is rosy in our labor market.
Job Growth Slows in Summer Months
Historically, job growth tends to slow down during summer months and at the transition periods for some companies’ fiscal years. By June, the pattern was evident. It had a diffusion index of only 49.6, which meant that a majority of industries surveyed lost more jobs than they gained. Looking ahead, job creation is still only averaging 130,000 jobs per month. This is the worst January through June showing since 2010.
Heather Long, a Post economics analyst, called attention to how top-heavy recent job growth has been. “We’re getting more and more reliant on a very small part of the economy to drive any sort of job growth,” she stated. Finally, the data hints that clearly defined sectors—such as manufacturing—are on fire and recently doubled their job creation. Health care and social assistance, and leisure and hospitality, are at the forefront.
In June, these employment sectors made up an outstanding 94% of the entire month’s job gains. Additionally, seasonal fluctuations have a much bigger effect on education jobs, given the summer months. This year’s drop doesn’t feel quite as bad as in past years. As usual, in July we’ll be looking to see how health care and social assistance continue to dominate overall job growth.
Structural Slog in the Labor Market
The US labor market, still wrestling with an uneven structural slog that poses unique challenges to overall recovery. Particularly since the pandemic hit the U.S. in February 2020, foreign-born workers have accounted for about three-quarters of all labor force growth, Wells Fargo economists found. This transition points to numerous emerging challenges around labor market dynamics and the future of the workforce.
Economic uncertainties are compounded by external factors, such as federal budget cuts affecting the nonprofit and healthcare industries. Andrew Challenger noted, “We are seeing the federal budget cuts implemented by [the Department of Government Efficiency] impact nonprofits and health care in addition to the government.” These cuts would threaten job placements for low-income people of color and those with criminal records.
In addition, fears about artificial intelligence (AI) and tariff-related economic disruptions have driven layoffs in several fields. Last month, AI-related cuts accounted for more than 10,000 of those job losses. Think about that — this year, tariff stupidity has destroyed almost 6,000 American jobs. Long remarked on the current state of employment: “There just are no jobs right now, AI or no AI, tariffs or no tariffs.” This message goes to the heart of the overall stress felt by all job seekers today as they enter a very competitive economic landscape.
Future Outlook and Expectations
Looking back, the July jobs report is expected to show a net increase of just 115,000 jobs. This figure is a significant drop from the 147,000 jobs gained in June that was originally reported. According to economists, health care and leisure industries will be key in leading the charge for these predicted increases.
Elizabeth Renter pointed out that uncertainty surrounding economic predictions leads companies to adopt a cautious approach: “When companies can’t make predictions about the economy and therefore their operations, they tend to wait for more information.” Such caution is all too often a recipe for paralysis of the hiring pipeline, especially in public sector and nonprofit spaces.
Long provided a sobering perspective on the current labor market: “The job market is frozen outside of health care and education, and this is a real hardship for anyone looking for a job.” These challenges experienced by the current job seekers greatly magnify the need to adapt industries that are quickly changing due to these transformations.