Labor Market Loses Steam: Job Openings Drop, Hiring Slows
Weekly Economic Review: Sept. 8, 2025
This week’s economic data highlights include: (1) Job Openings and Labor Turnover Survey (JOLTS) for July and 2) job creation and employment situation for August.
Key Summary:
JOLTS: The labor market showed signs of cooling in July, with job openings falling below expectations, hiring activity remaining mixed, and layoffs rising, all indicating a gradual easing in labor demand leading to reduced worker confidence.
The U.S. labor market showed signs of cooling in July, as job openings declined for the second consecutive month, falling below expectations and reaching their lowest level in nearly a year. The drop was led by notable reductions in health care and social assistance, retail trade, and arts and entertainment. Despite the decline, openings remained concentrated in sectors like health care, leisure and hospitality, and professional services. Regionally, most areas saw losses, with the West being the only region to post a gain.
The ratio of job openings to unemployed individuals declined again, with unemployed workers now outnumbering job openings for the first time since 2021. Hiring activity saw a modest increase, driven by gains in other services and wholesale trade, though some sectors such as transportation and food services experienced pullbacks. While the Northeast was the only region to report a drop in hiring, overall hiring levels were lower compared to the same period last year.
Layoffs rose slightly, reaching their highest level in nearly a year and surpassing market expectations. The increase was broad-based across private industries, with construction and education contributing to the rise, although professional and business services saw notably lower layoff levels. Voluntary quits remained stable month-over-month, though they were down compared to last year, indicating that workers may be less confident about switching jobs in the current environment.
Job creation and employment situation: In August, job growth was significantly weakened and concentrated in a few service industries, while the unemployment rate rose as labor supply outpaced labor demand.
The labor market showed clear signs of weakening in August, with job creation falling short of expectations and figures for the previous month revised downward. Although the short-term average of job gains ticked up slightly, it still reflects a persistent slowdown in hiring. Job creation has remained subdued for four consecutive months, marking the weakest stretch of growth since the pandemic recovery period. These trends suggest that labor supply is outpacing labor demand, with employers showing increased caution amid ongoing economic uncertainty.
Private sector employment experienced modest growth, primarily driven by gains in service-related industries such as healthcare and hospitality. However, these increases were concentrated in lower-skill roles and were offset by declines in higher-skill sectors like professional services, information, and finance. Meanwhile, government employment continued to contract, particularly at the federal level, and the goods-producing sector experienced ongoing job losses, especially in manufacturing.
Labor market indicators also reflected growing strain. The unemployment rate ticked up slightly, accompanied by a rise in long-term unemployment and the average duration of joblessness. Layoffs increased, particularly permanent ones, while temporary help services continued to decline. Wage growth remained steady, but reduced hours worked and rising part-time employment for economic reasons suggest potential challenges ahead for income growth and overall economic momentum.
Let’s take a closer look at this week’s data releases, including JOLTS and the job creation and employment situation.
JOLTS – July Update:
The Bureau of Labor Statistics (BLS) reported a decrease of 176,000 job openings in July, bringing the total to 7.18 million—down from a revised 7.36 million in June (initially reported as 7.44 million). This figure came in below market expectations of 7.38 million and marked the lowest level in 10 months, suggesting a gradual softening in labor demand. On a year-over-year basis, job openings declined by 323,000.
The monthly decline was primarily driven by reductions in health care and social assistance (-181,000), retail trade (-110,000), and arts, entertainment, and recreation (-62,000). Government job openings also fell at the state and local levels (-56,000). Notably, openings in health care and social assistance – typically non-cyclical and a key driver of job growth this year – dropped to their lowest level since January 2021. Despite the decline, these sectors, along with leisure and hospitality and professional and business services, continue to report the highest number of openings. Regionally, the Northeast, South, and Midwest saw declines, while the West posted a gain.
The ratio of job openings to unemployed individuals – a key indicator monitored by the Federal Reserve to gauge labor market tightness – fell to 0.99, down from a downwardly revised 1.05 in June. For the first time since April 2021, the number of unemployed workers exceeded the number of job openings. This compares to a pre-pandemic average of 1.2. Meanwhile, the number of hires rose by 41,000 to 5.31 million, up from 5.27 million in June. This increase was largely driven by gains in other services (+86,000) and wholesale trade (+27,000), partially offset by declines in transportation, warehousing, and utilities (-52,000), as well as accommodation and food services (-30,000). The Northeast was the only region to report a decline in hires. On an annual basis, hires fell by 143,000.
Layoffs increased by 12,000 to 1.81 million in July, following a revised jump of 192,000 in June to 1.79 million (up from an initial estimate of 1.60 million). July’s figure was the highest since September 2024, exceeding market expectations of 1.64 million and representing a year-over-year increase of 63,000. The rise was driven by increases across most private industries, including construction (+49,000), other services (+29,000), and private education and health services (+25,000), partially offset by a significant decline in professional and business services (-130,000). Layoffs rose in the Northeast and South, while the West and Midwest saw declines.
Voluntary resignations (quits) were virtually unchanged at 3.208 million in July, following a revised increase of 67,000 to 3.209 million in June (up from an initial estimate of 3.142 million). The July figure exceeded market expectations of 3.17 million. Year-over-year, quits declined by 182,000. The quits rate – which measures the rate at which workers voluntarily leave their jobs, excluding retirements – remained steady at 2%.
Job Creation and Employment Situation – August Update:
According to the BLS, the U.S. labor market showed notable signs of weakening in August. Employers added just 22,000 jobs, significantly below market expectations of 75,000, and down from a 79,000 gain in July (revised up from 73,000). June’s payroll figure was revised downward by 27,000, turning a previously reported gain of 14,000 into a decline of 13,000 – the first monthly drop since December 2020. Combined revisions for June and July show 21,000 fewer jobs than previously reported. New job gains have remained below 100,000 for four consecutive months. The three-month moving average rose slightly to 29,000 from 28,000 in July but still reflects a continued slowdown in hiring momentum.
Private sector employment rose by 38,000, missing the forecast of 75,000, while government employment declined by 16,000, driven by a 15,000 drop in federal jobs – the seventh consecutive monthly decline, totaling a loss of 97,000 federal jobs since January. Within the private sector, the service industry added 63,000 jobs, led by healthcare and social assistance (+46,800) and leisure and hospitality (+28,000). Job gains continued to be concentrated in healthcare and social assistance. However, these increases in lower-skill roles were offset by losses in higher-skill sectors: professional and business services (-17,000), information (-15,000), and financial activities (-3,000). The goods-producing sector shed 25,000 jobs, including a 12,000 decline in manufacturing, marking four consecutive months of contraction. Overall, the data reflects a labor market increasingly dependent on service-sector growth, while goods-producing and federal employment continue to soften.
The employment diffusion index measures whether job growth is broadly distributed across industries or concentrated in a few sectors, and serves as a leading indicator of turning points in the business cycle. The monthly reading for August was 49.6%, a slight increase from 48.0% in July. The index has remained below 50% for five consecutive months, indicating that job losses are more widespread, while job gains are concentrated in a limited number of sectors – most notably in healthcare and social assistance, as previously discussed. This persistent trend of sub-50% readings reflects a broader slowdown in economic activity, raising the likelihood of an economic contraction or recession. Historically, the diffusion index tends to fall below 50% as the business cycle enters a downturn.
The unemployment rate rose to 4.3% in August from 4.2% in July, aligning with expectations. This increase was driven by a 436,000 expansion in the labor force, representing 0.26% month-over-month growth, and a 148,000 rise in unemployment, a 2.05% increase from the prior month. A total of 288,000 individuals gained employment during the month. These figures are consistent with other metrics showing that labor supply is outpacing labor demand. The labor force participation rate edged up to 62.3%, slightly above market expectations. Long-term unemployment rose again, with 1.93 million individuals unemployed for 27 weeks or more, the highest since December 2021. The average duration of unemployment increased to 24.5 weeks, the highest since April 2022.
Layoffs rose modestly by 32,000, primarily due to 87,000 permanent layoffs, partially offset by a 54,000 decline in temporary layoffs. The number of job leavers remained unchanged. Employment in temporary help services, a leading labor market indicator, fell by 9,800, continuing a four-month downward trend. The number of people working part-time for economic reasons increased by 65,000 to 4.75 million, while the share of multiple jobholders rose to 5.4% of total employment, reflecting a 443,000 gain.
Wage growth remained steady, with average hourly earnings rising 0.3% month-over-month (in line with expectations) and 3.7% year-over-year (slightly below expectations). Meanwhile, average weekly hours worked held at 34.2, unchanged from the prior month and below expectations. These figures suggest that sluggish hiring and reduced hours may pose risks to future economic and income growth.
Market Analysis:
Equity markets ended the week with mixed results, primarily influenced by weak labor market data. While the data raised concerns about a potential economic slowdown, it also boosted expectations for rate cuts beginning with the September FOMC meeting. Additionally, a favorable antitrust ruling for Alphabet and Tesla’s board proposal of a $1 trillion compensation package for CEO Elon Musk contributed to market movements. The S&P 500 rose 0.3%, while the Dow Jones Industrial Average declined 0.3%. Nasdaq outperformed with a gain of 1.1%, partially supported by the positive news surrounding Alphabet and Tesla. Small-cap stocks, which are typically more sensitive to interest rate changes, saw the Russell 2000 gain 1% for the week.
Treasury yields declined across all maturities over the week, driven by the weaker-than-expected jobs data. The 2-year, 5-year, and 10-year notes fell by 8, 9, and 13 basis points, respectively, ending the week at 3.51%, 3.59%, and 4.10%.
Markets are currently pricing in two quarter-point rate cuts in 2025 with 100% certainty, and a third cut with a 75% probability — totaling a 0.75% reduction. The first cut is expected in September with full certainty. A second cut is anticipated either in October (86% probability) or December (100% probability). If the second cut occurs in October, there is a 75% probability of a third cut in December. Looking further ahead, markets are projecting three additional rate cuts in 2026.
Next Week’s Economic Calendar:
Markets will be closely watching several key economic indicators in the coming week for signals on the direction of the U.S. economy. The calendar begins Monday with July consumer credit, followed by the August NFIB Small Business Optimism Index on Tuesday. On Wednesday, the August Producer Price Index (PPI) will be released, followed by the August Consumer Price Index (CPI) on Thursday. These CPI and PPI reports will be the final major inflation data points ahead of the Federal Reserve’s September FOMC meeting.
The CPI is expected to rise by 0.3% in August, up from a 0.2% increase in July, with the year-over-year rate projected to accelerate to 2.9% from 2.7%. Core CPI, which excludes food and energy, is also forecast to increase by 0.3% month-over-month, matching July’s pace, and remain steady at 3.1% year-over-year. These figures will be closely analyzed for signs of persistent inflation and their implications for monetary policy.
Mark Yoon, CFA CPA
EVP & CFO of Commercial Bank of California
Thomas McCullough
EVP of Commercial Bank of California
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