Labor Market Cools Further as Consumer Confidence Drops and Rate Cut Bets Rise

Weekly Economic Review: Oct. 6, 2025

This week’s economic data highlights include: (1) Job Openings and Labor Turnover Survey (JOLTS) for August and 2) consumer confidence for September.

Key Summary:

The August JOLTS report signals a cooling labor market, with job openings slightly up but still down year-over-year, hires and quits declining, and the ratio of openings to un-employed individuals falling below 1 for the second consecutive month, indicating that there are more job seekers than available positions.

In August, U.S. job openings rose slightly by 19,000 to 7.23 million, surpassing market expectations and remaining above the pre-pandemic average. However, year-over-year openings declined by 422,000. The monthly increase was driven by gains in accommodation & food services, health care, and retail trade, while construction and federal government sectors saw notable declines. Regionally, the South and Midwest experienced growth, whereas the Northeast and West reported decreases.

The labor market showed further signs of softening, with the job openings-to-unemployed ratio dipping to 0.98 – indicating the existence of more unemployed individuals than available jobs for the second consecutive month. Hires fell by 114,000 to 5.13 million, the lowest level since June 2024, with significant declines in trade, transportation & utilities, and accommodation & food services. The hiring rate (hires as a percentage of employment) also edged down to 3.2%, with only the Northeast reporting an increase in hires.

Layoffs decreased by 62,000 to 1.73 million, driven by reductions in the trade, construction, and entertainment sectors, while professional services and food services saw increases. The layoffs rate (layoffs and discharges as a percentage of employment) held steady at 1.1%. Voluntary quits dropped by 75,000 to 3.09 million – below expectations and the lowest since November – suggesting waning worker confidence. The quits rate – which measures the rate at which workers voluntarily leave their jobs (excluding retirements) – declined to 1.9%, reinforcing signs of a cooling labor market.

Consumer confidence declined in September to its lowest level since April, driven by growing concerns about job prospects, a weakening labor market, and persistent inflation, with recession fears and reduced spending intentions signaling increased economic uncertainty.

Consumer confidence declined in September, with the Conference Board’s index falling to 92.2 – its lowest level since April 2025 – driven by growing concerns about job prospects and economic conditions. The Present Situation Index, which reflects consumers’ views on current business and labor market conditions, dropped to a one-year low of 125.4, as consumers reported weaker perceptions of current business and labor market conditions. The labor market differential – the gap between those saying jobs are plentiful versus those feeling jobs are hard to find – fell to 7.8, the lowest since February 2021, with fewer consumers viewing jobs as plentiful. The Expectations Index, which gauges short-term outlooks for income, business, and employment, also declined to 73.4, remaining below the recession signal threshold of 80 for the seventh consecutive month, reflecting increased pessimism about future job and business conditions, though income expectations improved slightly.

Inflation remained a top concern, with expectations easing to 5.8% in August but still elevated compared to late 2024 levels. Recession fears rose to their highest level since May. Consumer spending intentions were mixed: while plans to purchase new and used vehicles declined, home-buying intentions reached a four-month high. However, interest in travel-related services continued to fall, with vacation plans hitting their lowest level since April, indicating cautious sentiment around discretionary spending.

Let’s take a closer look at this week’s data releases, including JOLTS and consumer confidence.

JOLTS – August Update: 

The Bureau of Labor Statistics (BLS) reported a modest increase of 19,000 job openings in August, bringing the total to 7.23 million, up from a revised 7.18 million in July (initially reported as 7.21 million). This figure exceeded market expectations of 7.20 million and remains above the pre-pandemic average of 7.15 million. However, on a year-over-year basis, job openings declined by 422,000.

The monthly increase was primarily driven by gains in:

• Accommodation & Food Services: +106,000
• Health Care & Social Assistance: +81,000
• Retail Trade: +55,000

These were mostly offset by declines in:

• Construction: -115,000
• Federal Government: -51,000

Regionally, the Northeast and West experienced declines, while the South and Midwest saw gains.

The ratio of job openings to unemployed individuals – a key indicator of labor market tightness monitored by the Federal Reserve – fell to 0.98, down from nearly 1.00 in July after an upward revision. For the second consecutive month, there are slightly more unemployed individuals than available job vacancies. This compares to a pre-pandemic average of 1.2 job openings for each unemployed person.

Meanwhile, the number of hires declined by 114,000 to 5.13 million, down from 5.24 million in July, marking the lowest level since June 2024. The decline was largely driven by:

• Trade, Transportation & Utilities: -91,000
• Accommodation & Food Services: -50,000
• Professional & Business Services: -17,000

These were partially offset by increases in:

• Construction: +22,000
• Arts, Entertainment & Recreation: +19,000

The hiring rate fell to 3.2% in August from 3.3% in July. The Northeast was the only region to report a gain in hires. On an annual basis, hires declined by 104,000.

Layoffs decreased by 62,000 to 1.73 million in August, down from a revised 1.79 million in July (initially estimated at 1.81 million). July’s figure came in below market expectations of 1.83 million but still represented a year-over-year increase of 28,000. The decline was primarily driven by:

• Trade, Transportation & Utilities: -63,000
• Construction: -29,000
• Arts, Entertainment & Recreation: -28,000

These were partially offset by increases in:

• Professional & Business Services: +34,000
• Accommodation & Food Services: +20,000

The layoffs rate held steady at 1.1% for the third consecutive month. Layoffs rose in the Northeast and Midwest, while the West and South saw declines.

Voluntary resignations (quits) fell by 75,000 to 3.09 million in August, down from 3.17 million in July (revised from an initial estimate of 3.21 million). This marks the lowest level since November and came in below market expectations of 3.17 million. Year-over-year, quits declined by 86,000. The quits rate dropped to 1.9% in August from 2.0% in July, suggesting reduced worker confidence in finding new employment.

Consumer Confidence – September Update:

The Conference Board reported that its Consumer Confidence Index fell by 3.6 points to 92.2 in September, marking the lowest level since April 2025 and coming in below expectations. The decline was primarily driven by growing concerns about job prospects and the broader economy, underscoring how sensitive consumer sentiment remains to labor market conditions.

The Present Situation Index dropped 7.0 points to 125.4, the lowest in a year. Assessments of business conditions weakened, and perceptions of the labor market deteriorated. The labor market differential fell sharply to 7.8, its lowest level since February 2021. The share of consumers reporting jobs as plentiful declined to 26.9%, also the lowest since February 2021.

The Expectations Index edged down 1.3 points to 73.4, remaining below the recession signal threshold of 80 for the seventh consecutive month. While consumers were more pessimistic about future job and business conditions, expectations for future income showed modest improvement. Inflation remains a top concern, with expectations easing slightly to 5.8% in August, though still elevated compared to the 5.0% level at the end of 2024. Recession fears ticked up to the highest level since May. Purchasing intentions were mixed: plans to buy cars declined, home-buying intentions rose to a four-month high, and interest in travel-related services continued to fall.

Market Analysis:

Equity Market Weekly Recap

Equity markets ended the week higher across major indexes, with gains led by the healthcare and utilities sectors. The rally was primarily fueled by expectations of further Federal Reserve rate cuts amid signs of a weakening labor market, along with sustained optimism surrounding artificial intelligence. These positive drivers more than offset concerns about soft economic data and the potential impact of a government shutdown.

Investors appear confident that any shutdown will be short-lived and have minimal long-term economic consequences. The Dow Jones Industrial Average and the S&P 500 both closed at new record highs, while the Nasdaq outperformed other major indexes. The Russell 2000, representing small-cap stocks, posted the strongest weekly gain.

Weekly Performance Highlights:

• Nasdaq: +1.3%, closing at 22,781
• S&P 500: +1.1%, ending at 6,716
• Dow Jones Industrial Average: +1.1%, closing at 46,758
• Russell 2000: +1.7%, ending at 2,476

Treasury Market Update

Treasury yields declined across all maturities over the past week, driven by mounting evidence of a cooling labor market. Multiple labor market indicators pointed to softening conditions, increasing the likelihood of additional Federal Reserve rate cuts. Investor sentiment also shifted from concerns about persistent inflation to growing apprehension over economic weakness, prompting a flight to the safety of government bonds and pushing yields lower.

By week’s end, the 2-year, 5-year, and 10-year Treasury yields fell by 5, 4, and 7 basis points, respectively, closing at 3.58%, 3.72%, and 4.13%.

Rate Cut Expectations

Markets are currently pricing in two 25-basis-point rate cuts in October and December 2025, with probabilities of 95% and 89%, respectively. Looking ahead to 2026, expectations point to two additional cuts totaling 50 basis points – anticipated in March and July – as part of a continued monetary easing cycle by the Federal Reserve.

Next Week’s Economic Calendar:

Due to the ongoing federal government shutdown, public data releases – including last week’s nonfarm payrolls report – have been suspended. If the shutdown continues, upcoming releases will also be delayed. The economic calendar for next week remains relatively light, with the following scheduled reports:

• Tuesday:
  • Trade Balance
  • Consumer Credit
• Wednesday:
  • Mortgage Applications
  • Minutes from the September FOMC Meeting
• Thursday:
  • Weekly Jobless Claims
• Friday:
  • University of Michigan Consumer Sentiment Index

Mark Yoon, CFA CPA
EVP & CFO of Commercial Bank of California

Thomas McCullough
EVP of Commercial Bank of California

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