We are finally beginning to see key economic data emerge following the nation’s longest government shutdown. While some releases are more dated than usual, they still shed important light on the current state of the U.S. economy.
The phrase “a no-hire and no-fire economy” remains fitting and describes today’s labor market well. Conditions are clearly softer than a year ago. The unemployment rate, at 4.3%, is still historically low, but the nation’s job creation engine continues to cool. The September BLS report showed a gain of 119,000 jobs, with only 97,000 coming from the private sector. Revisions for July and August moved both months downward, with August now showing a decline of 4,000 jobs.
Healthcare again led the way, adding 43,000 jobs, accounting for nearly half of all jobs created. Food services and drinking places was the second-strongest contributor.
But weakness is visible across several economically sensitive sectors. Transportation and warehousing lost 25,000 jobs. When the economic engine is accelerating, we normally see strong gains here, as goods are produced, shipped, and stored. Manufacturing lost another 6,000 jobs, continuing a trend that has yet to show any meaningful benefit from tariffs. Professional and business services, a key leading indicator of broader economic activity, fell by 20,000, with temporary labor accounting for 16,000 of that decline. Employers tend to cut temporary labor first when conditions weaken, and add those workers back first when the cycle turns. So, these losses are noteworthy.
Digging deeper, the lowest unemployment rate by occupation group was in management, business, and financial operations, interesting given the headlines about AI-driven job destruction. The highest unemployment rates were in farming, fishing, and forestry (7.4%), followed by transportation and material moving (5.5%), and production occupations (4.7%).
Initial claims for unemployment continue to run at historically low levels, but continuing claims are not declining. These combined statistics suggest that it is taking longer for the unemployed to find work. Those unemployed for 15 weeks or longer have increased by 350,000 since last year.
The bottom line: This is an economy that is not generating a significant number of jobs, and that is the primary reason the Federal Reserve is likely to cut rates again in December. As we noted several columns ago, the Fed would eventually shift its concern toward the labor market. At that time, we projected three additional rate cuts in 2025. We have now seen two cuts, with one meeting left this year. The CME Fed Watch Tool shows an 86% probability of a December cut, a jump that followed comments from New York Fed President John Williams signaling support for further easing.
Turning to consumers, early Black Friday reports indicate spending will surpass last year’s levels. Black Friday continues to blend value-driven shopping with experiential activity, so it is still too early to declare the full holiday season’s performance. However, the National Retail Federation is projecting growth, and the initial data support that outlook. Wage growth continues to outpace inflation, additional fuel for consumer spending.
Still, the Fed is justified in cutting rates in December, especially with rising concerns about the labor market. The economy has been propped up by strong consumer spending, but consumer strength ultimately depends on employment. The latest retail sales report showed a decline, and consumer confidence has taken another hit. Continued labor market weakness could eventually derail the resilient consumer and tip the economy into recession. We are not there yet, but the Fed is wise to act now to help prevent that outcome.
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