Labor Market Deep Dive

Executive Summary

A full review of current labor market data reveals a truly mixed picture. It is strong enough in some areas to support optimism, yet weak enough in others to justify caution. In an environment where selective use of statistics can create a convincing case for either a bullish or bearish view, we at Marietta remain committed to cutting through the noise. Our analysis is grounded in the complete set of facts, and below we share our findings on where the labor market really stands.

Split Opinions

Following the release of the July employment report* on August 1, opinions on the state of the labor market have diverged sharply. To give our readers an unbiased and clear perspective, we have combed through the relevant data so that you don’t have to. Our assessment reveals that the data is mixed, meaning it is possible to overstate both the positive and negative cases. To illustrate this, we outline an overly optimistic and an overly pessimistic view below. Both are backed by selected facts, but each ignores key data that offers counterevidence. As always, reality is defined by the full picture, not just what is convenient.

The Bull Case

The positive case starts with low headline unemployment rate at 4.2%, unchanged over the past 12 months and healthy by historical standards. Businesses are not cutting staff hours, a common precursor to layoffs. Initial jobless claims are at the midpoint of the range they have held for the past two years, and Layoffs and Discharges data show a decline from cyclical highs reached last fall. While the pace of hiring has admittedly been subdued in recent months, July brought a significant rebound in private payrolls, while government jobs reductions reflect planned and expected cuts. Job openings bottomed out a year ago after normalizing from their COVID-era highs and have held steady since. Looking forward, wages rose 3.9% over the past year, outpacing inflation and providing a strong foundation for further consumer spending. The labor market has been so strong that any soft numbers reflect a pause from a position of strength, which is normal and even healthy.

The Bear Case

July marked the third consecutive month of sub-replacement job growth and - with downward revisions the norm over the past few years - the actual underlying numbers could be even weaker. Continuing jobless claims and the long-term unemployed have spiked higher to the highest levels since 2021. Manufacturing employment has declined for the fourth straight month, plummeting 113,000 from a year ago. The reason this hasn’t translated into a higher unemployment rate yet is a shrinking number of people looking for work: the labor force participation rate falling to 62.2%, down a deeply concerning 0.5% in just one year. The U-6 unemployment rate, a broader unemployment measure that counts people who are working part-time that want to work full-time, has been trending higher. The quits rate, a proxy for worker confidence, has trended lower for the past two years, near levels not seen since 2020. This deterioration in the labor market is just the beginning of a long-term trend toward mass layoffs and recession.

Marietta’s Clear Perspective

When taken in isolation, both narratives sound convincing! But incorporating the full set of data, rather than cherry-picked parts, reveals a more nuanced and complex scenario.

Our view is that the mixed data is reflective of a soft landing*: a labor market that bends but doesn’t break. Hiring has clearly slowed and some leading indicators suggest additional caution is warranted. At the same time, key pillars of strength remain intact: layoffs remain subdued, core service sectors continue to hire, hours worked are stable, and wage growth is outpacing inflation. Broader US economic growth has moderated alongside the labor market, but structural supports have thus far prevented a more severe downturn. This period of slow growth could persist for several more months, but there might be some “green shoots” suggesting stabilization and potential early signs of acceleration.

Beyond the data, we are monitoring some long-term forces such as demographics, immigration trends, and the pace at which AI adoption may affect employment. As always, we will let the data shape our conclusions.