America’s Jobs Market Has Entered the Twilight Zone

The strong gain of 254,000 jobs in September was a welcome surprise after months of cooling in the labor market and reinforced other signs of strength in the US economy. However, one month does not make a trend, and even with the Federal Reserve cutting interest rates, a sustained turnaround in hiring will take time.

In the latest figures from August, the rate of new hires — that is, new workers as a percentage of total employment — fell to 3.3%. This is comparable to what it was in 2013, when the unemployment rate was more than 7% (It is currently 4.1%)[CS1] Yet, layoffs remain low.

This suggests a cooling but complex labor market: Companies aren’t so worried that they’re letting a lot of people go, but they’re not so confident that they’re hiring a lot of people. This situation is unlikely to change until there is less uncertainty about the economy — and that, in turn, depends on what happens not only with the Federal Reserve and interest rates, but also with the elections next month.

cooling off

Historically, the inability of people to find jobs has had a greater impact on the unemployment rate than workers losing jobs. In 2012, a research paper found that job-finding rates explained three-quarters of the changes in unemployment since 1948. Applying its methods, two economists at the Federal Reserve Bank of Minneapolis argue that the decline in the job-finding rate can also account for most of the increase in the unemployment rate since the second half of 2022. If hiring remains soft, and even with few layoffs, unemployment will likely rise.