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2025-07-30 10:45:32
The bottom half of the US labor market is shaky. The US labor market has remained resilient, weathering soaring inflation, high interest rates, and the beginnings of the trade war, but workers at the bottom are beginning to falter. Wage growth for the bottom quartile of workers has lagged far behind the rest of the population this year, with year-over-year wage increases of just 3.7% in June, compared to 4.3% for the overall group. These jobs are concentrated in the retail, leisure, and hospitality sectors, making them particularly vulnerable to slowing consumer spending. Layoffs remain low, but declines in payroll and new job openings suggest that weakness is spreading. Recent job growth has been highly concentrated in a single industry: healthcare, which accounted for 44% of new jobs in May. While the layoff rate remains near its pandemic low of just 1%, the number of quits has fallen sharply. This trend suggests that workers lack confidence in finding better jobs than their current ones, which is suppressing overall wage growth. The average workweek is now just over 34.2 hours, the lowest since 2011, reflecting the continued employment of hourly workers, but with fewer shifts. Goldman Sachs' chief economist said this "stagnant pace" of employment keeps the bank's estimate of the probability of a recession within 12 months at 30%. However, the economic expansion will not "die a natural death" but will be "murdered" as the saying goes. The uncertainty caused by the sharp fluctuations in tariff levels from 2% to more than 20% in a few months may be the culprit that kills the economic expansion. Although concerns about the labor market have convinced some officials, including Federal Reserve Governor Christopher Waller and Vice Chairman Michelle Bowman, that the Fed's policy is too restrictive, the shadow of inflation may prevent the Fed from cutting interest rates at this week's meeting. Eventually, the rate cut will come, but it is better to do so for positive reasons such as a decline in consumer inflation rather than a collapse in the job market.
