Frozen Labor

Our economic system is predominantly capitalism, meaning businesses make their own decisions designed to generate profits for their owners/shareholders, but the economy also includes some social elements meaning programs controlled by the government and intended to promote stability and the public good. These include things like the military and the social security system.

Tariffs also meet some of these same parameters of a social program since they are controlled by the government and intended for the public good; however, like them or loath them, so far tariffs have failed to promote stability. Shifting rules, rates, and rationale, along with challenges in the courts and with trading partners, have created ongoing uncertainty. This has left many business leaders unable or unwilling to make significant business decisions. Normal planning is frozen for fear of making a wrong decision. Expansion plans are on hold, new product development is on hold, and more importantly new hiring is on hold.

The last three available monthly reports of new job creation have been minus 13,000 (a loss), 79,000, and 22,000, for an average of about 29,000 per month. September data is not yet available due to a government shutdown. While the data is known to be volatile from month to month, these are very weak numbers for a labor force of 170 million. To put it in context, an April 2025 St. Louis Federal Reserve report cited the "break even" jobs rate necessary to maintain a steady economy is around 150,000 new jobs per month, 5 times recent averages.

Some have discounted the validity of these numbers because a few weeks ago the trailing annual tally of new jobs was revised downward by 911,000. A similar downward revision of 818,000 happened in August 2024. This well-known tendency for the data system to overshoot is neither new nor a surprise. Even so, this "flawed" system can still help us identify the direction of things. It’s telling us the labor market has significantly slowed.

Historically an anemic jobs market tends to dampen consumer sentiment and make them more cautious with their spending. So far consumers seem unfazed. After flatlining in May, consumer spending rose 0.5%-0.6% for the next three months. What’s next? It’s hard to envision an economic downturn if consumers keep up their spending and the stock market keeps rising. On the other hand, it’s hard to foresee a strong economic future if new jobs remain few and far between. Perhaps we end up with a sideways, slow growth economy composed of two distinct groups of consumers. Those who have jobs keep them and keep spending (an economic boost), while those without jobs have a hard time finding work and curtail their spending (an economic drag).

Changes can be the spark that lights long term economic benefits, but at the moment short term uncertainty has the labor market locked in ice. Until business leaders have more clarity falling interest rates, a rising stock market, and growing artificial intelligence are unlikely to spur a new hiring cycle.

Frank Rizzo,  CERTIFIED FINANCIAL PLANNER ^TM

The opinions in this material are for general information only and not intended to provide specific advice or recommendations for any individual. The economics and market forecasts set forth in this material may or may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Investing includes risk, including fluctuating prices and loss of principal.