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Economic growth seems to be holding up OK. But the labor market is another story. You could even say that we’re in a jobs recession, with hiring down sharply and nearing the point of net job losses. What’s behind the slowdown, and does it portend an outright recession later?
Consider how much hiring has dropped this year. The rate of monthly job creation in the summer of 2024 averaged 89,000. Fast-forward to the summer of 2025 and it fell to just 29,000. More than half of all sectors and industries in the U.S. are seeing employment decline right now. The bulk of job gains now are in healthcare and hospitality. The hiring rate, meaning the number of new jobs as a percentage of total employment, is the lowest it has been since 2010, after the Great Recession.
Some of this decline was to be expected. The furious pace of hiring after the pandemic drop could never last. Tech companies, in particular, have shifted from hiring like mad to focusing efforts on developing artificial intelligence and using AI to automate work that used to require programmers.
But this is more than merely the cooling of a formerly hot jobs market. Businesses are largely avoiding hiring as they await clarity on trade policy. The federal government, a huge employer, has been shedding jobs this year as the White House has trimmed headcount. State governments are cutting back, too. Also, the labor force is shrinking amid the crackdown on illegal immigration.
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And yet, there are positives propelling the economy, too. Although companies aren’t hiring for the most part, they also aren’t firing — layoffs remain low. The wealthy continue to spend freely, thanks in part to lofty asset values. Worker productivity, which had shown sluggish growth for years, has picked up recently, which suggests that companies can boost output, even without hiring much. The pro-growth features of the new tax law will start kicking in. It also headed off a scheduled rise in tax rates.
Add it up, and you get a picture of an economy balanced on a knife’s edge. It’s growing decently, but the factors underpinning that growth look fragile. A downturn in the stock market, for instance, could make affluent folks feel differently about spending so much. The massive capital investments being made in AI currently could end up being wasted if the tech doesn’t live up to its hype. A few large layoffs could tip slow job gains into outright losses, and spook consumers into spending less. (Watch the weekly initial unemployment claims for any signs of layoffs gaining steam.)
It wouldn’t take much going wrong to raise the specter of an actual recession, though it would likely be a mild one. Recessions aren’t inevitable, but they tend to hit when the economy is vulnerable to some new shock. Extra alertness is called for now.
This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.
