The US economy seems healthy on the surface, but cracks in the jobs market have formed, suggesting many Americans aren’t doing nearly as well as you might think.
Before the government shutdown in D.C., the Bureau of Labor Statistics reported that unemployment had risen to 4.3% in August, up from 3.4% in 2023, and the highest since 2021. The shutdown means we haven’t seen any more official updates from the BLS, but private sector jobs data hasn’t been overly encouraging for job hunters.
U.S. Unemployment rate in 2025 by month:
- August: 4.3%
- July: 4.2%
- June: 4.1%
- May: 4.2%
- April: 4.2%
- March: 4.2%
- February: 4.1%
- January: 4%
Source: Bureau of Labor Statistics.
On Nov. 5, payroll processing giant ADP reported the US economy created 42,000 jobs, reversing a loss of 32,000 in September. That was more than economists had hoped, but hardly enough to make most people think the job market is healthy — especially since average monthly job growth was about 130,000 in 2024.
Now, Bank of America, which boasts 69 million customers, has released its latest jobs data, and the findings do little to ease concerns.
Fed risks falling behind the curve
The increase in the BLS’s unemployment rate through August was enough to convince the Federal Reserve to begin cutting interest rates again. It lowered the Fed Funds Rate by a quarter-percentage point in September and October in an attempt to shore up hiring.
Unfortunately, the moves may not be enough to move the needle. The US economy has expanded this year, but real GDP growth has been heavily driven by a surge in spending on building and outfitting data centers to train and run AI applications, such as ChatGPT and Google’s Gemini, rather than runaway demand across manufacturing and services.
Harvard economist Jason Furman estimated earlier this year that, absent AI spending, GDP would have only grown 0.1% through the first six months — hardly barn-burning growth that supports hiring.
More Economic Analysis:
- Fed official warns inflation is still too high for more rate cuts
- Fed decision could lower stagnant mortgage rates
- Redfin predicts major mortgage rate change coming s
The outsized impact of this spending on the economy may be hiding a bigger problem than the Fed realizes. Without solid data from the BLS, the Fed’s forced to make monetary policy decisions that are more conservative than they might be otherwise.
That’s especially true because the inflation data we do have shows prices are rising again, crimping consumers’ budgets. The Consumer Price Index for September (cobbled together late last month because of the shutdown) showed inflation at 3%, up from 2.3% in April before most of President Trump’s tariffs were enacted.
CPI by month (2025):
- September: 3%
- August: 2.9%
- July: 2.7%
- June: 2.7%
- May: 2.4%
- April: 2.3%
Source: BLS/CPI.
Since the Fed’s job is dictated by a dual mandate to target low inflation and unemployment, and these two goals contradict each other, the Fed must weigh the risk of cutting aggressively through the lens of potentially fanning inflationary flames.
Bank of America releases October jobs data
The job picture grew more concerning on Nov. 6 when Challenger, Gray, and Christmas’s closely watched monthly report on layoffs was released. I won’t sugarcoat it: The October data was eye-poppingly bad.
U.S.-based employers cut 153,074 jobs last month, up 175% year over year and 183% from September. It was the largest number of layoffs recorded in October since 2003. Year-to-date, layoffs total nearly 1.1 million, up 65% from the same period last year.
“AI adoption, softening consumer and corporate spending, and rising costs drive belt-tightening and hiring freezes,” said Andy Challenger. “Those laid off now are finding it harder to quickly secure new roles.”
Those figures weren’t the only bad news about the jobs market, though. Bank of America also chimed in with its monthly report, and there wasn’t much to like about it either.
More people on unemployment isn’t a good thing, given the other evidence we’ve seen the past few months. Still, Bank of America noted that “payroll growth held steady at around 0.5% in October, the same growth rate as in September.”
Same is better than worsening, I suppose, but hardly something I’d want to plant a flag on as evidence of a healthy job market. Particularly given that Bank of America also says that after-tax wage and salary growth slowed in October. It found growth for “higher-income households at 3.7% YoY, middle-income at 2%, and lower-income at just 1%.”
With inflation at 3%, that doesn’t paint a rosy picture for discretionary spending, which is key to our consumer-driven economy.
