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Friday’s payroll report revealed a stalled labor market with limited hiring but minimal layoffs, indicating a fragile balance that continues to support consumer spending for now.

What Caught Our Eyes This Week

Labor Markets Are More Stuck Than We Thought

The big news from Friday’s payroll report was massive revisions to job gains for the prior two months. In hindsight, job creation has been effectively non-existent for the past three months, with the health care sector standing out as the single source of strength. We knew companies have been hesitant to hire, but the magnitude of the stagnation caught people off guard. The good news is that evidence of layoffs is still highly limited, which is keeping a lid on the unemployment rate.

So, labor markets are stuck, with very little hiring but also very little firing. To be fair, a 4.2% unemployment rate (near many economists’ estimates of so-called “full employment”) isn’t the worst place to be stuck. Life is tough for job seekers, but most Americans are still employed and seeing decent wage gains, which is keeping a floor under consumption. Layoffs are the shock to the system that causes economic weakness to feed on itself. The current dynamic is a tightrope walk that can’t last forever, but until we start to see companies slashing head counts en masse, the door remains open for re-acceleration.

CHART OF THE WEEK: Source: Cerity Partners, FRED, 8/3/2025.

Past performance does not guarantee future results.

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