The jobs market has been burning white-hot for a couple of years now. Despite efforts to slow down the economy, post-pandemic payroll growth has remained strong and the U.S. has managed to keep unemployment at near historic lows.
But over the last few months, the situation’s changed dramatically. The government’s latest official figures show that job numbers and wage growth have gone stone-cold. Unemployment shot right up in August, and revised numbers revealed that 2025 hasn’t been half as good a year as we thought.
So, what gives? And more importantly, should you be worried?
Before we talk about why America’s job market is weakening, let’s pump the brakes and take a closer look at the latest headlines that are creating panic this week.
What Is the Latest Job Market News?
Market watchers have been getting increasingly nervous about the state of the U.S. jobs market as the summer comes to a close. We’ve seen growth slow across a number of key employment metrics this quarter, stoking fears the market is stuck in a weakening trend.
Well, any and all doubters were silenced last week when the U.S. Bureau of Labor Statistics (BLS) published its monthly jobs report.
The report is essentially a scorecard that breaks down key components of the market and the net change we’ve seen month-over-month. For August, those net changes gave us enough information to officially declare a time of death on America’s relatively long period of strong job growth.
The BLS packs a lot of statistics into its monthly reports, but here are the highlights:
- Non-farm payrolls: This number represents the net change in employed Americans over the last month. In August, the U.S. added 22,000 jobs against a consensus forecast of 80,000. That’s the slowest level of growth we’ve seen in almost four years.
- Revised numbers: In addition to slowing payrolls, the August jobs report also revised the job count for June from a gain of 14,000 to a loss of 13,000. That’s the first outright monthly job loss the U.S. has seen since 2020. Overall, BLS revisions resulted in 911,000 less jobs in the year to March 2025 than had been previously reported.
- Unemployment rate: This one came as a surprise to a lot of analysts. America’s unemployment rate increased to 4.3% in August, hitting its highest level since October 2021.
- Wage growth: August’s report revealed pay gains are cooling, too. Wages have risen 3.7% year over year. That’s down from 3.9% in July, and represents a continued downward trend we’ve been on since 2022.
Those are the big numbers that economists are concerned about. But there were some other worrying stats that went beyond the headlines.
We now know that job gains are highly concentrated in just a couple of sectors like healthcare. Meanwhile, the areas we’d typically associate with economic growth (like manufacturing or wholesale trade) are either stagnating or contracting.
In short: Some parts of the labor market are gaining some momentum. But the sectors we really need to build up are looking more fragile than ever. That paints a pretty sorry picture of America’s jobs market overall.
Why Is the Labor Market Weakening?
Unless you spend loads of time bathing in economic data, this news of a chronically weak labor market might come as a bit of a shock. But the truth is that this decline has been a long time coming. In some respects, it’s even been kind of intentional.
The biggest driver behind America’s weakening labor market is the U.S. Federal Reserve and its aggressive monetary policy.
For the last two years, the Fed has been using artificially high interest rates to combat inflation rates. Because inflation has eroded the purchasing power of U.S. households over the last couple of years, consumers have had to pull back on discretionary spending. That means less revenue for American businesses and inevitable job losses.
By keeping borrowing rates high, the Fed’s goal has been to slow the economy down and reduce inflation.
Unfortunately, higher rates don’t just reduce inflation. Because the cost of capital has gone up, a lot of businesses have prioritized cost management instead of growth. So instead of borrowing money to expand, a lot of big companies have seen a huge slowdown in hiring or have implemented hiring freezes.
Again, the Fed expected this to happen. But what the central bank didn’t see coming was some strong global headwinds contributing to this forced economic slowdown.
You see, America isn’t the only country combatting high inflation and slowing growth.
Big economies like Germany and Japan have come to a grinding halt, and recessionary pressures (plus those pesky tariffs we keep talking about) in some of our export markets have significantly reduced demand for U.S. goods and services. That has hit American companies hard and forced big corporations to slow hiring or cut jobs in ways the Fed couldn't predict (or control).
What Is the Jobs Forecast for the Rest of 2025?
After the sorry state of August’s jobs report, everybody’s debating what this means for the rest of 2025. And although it looks like the U.S. labor market is still gripped in a downward spiral, there’s actually a bit of optimism moving forward. Why?
From the Fed’s perspective, these figures effectively illustrate a successful soft landing for an economy that was burning too hot. The jobs market hasn’t collapsed, but it’s cooling at a manageable pace. Meanwhile, wage growth has slowed and inflation appears to have reached a manageable level.
That gives the Fed the green light to cut interest rates later this month.
Everybody’s expecting a 25-basis-point reduction on Sept. 17, and a lot of market watchers are anticipating a further two consecutive rate cuts taking us into 2026.
These reductions tend to be a simple but effective way to stimulate economic growth and stabilize the jobs market. By making borrowing cheaper, companies will be able to fund growth initiatives and new projects, increasing their payroll count as a direct result.
But before you uncork the champagne, it’s important to remember the global headwinds at play here. Although a loosening of domestic monetary policy will almost certainly have a positive impact on the labor market here in the U.S., there are plenty of signs to indicate weak export demand will continue well into 2026.
Also bear in mind that the next BLS jobs report will be released on Oct. 3. That’s only a couple of weeks after the Fed (hopefully) brings down borrowing rates, which isn’t enough time to make a big dent in the labor market. In fact, we might not see companies really ramping up hiring activity until the very end of 2025.
Translation: You can expect job growth over the next couple of months, but that growth is going to be modest at best.
