As late as February, monthly revisions to the establishment survey (a.k.a. nonfarm payrolls) were consistently coming in weaker than the initial reports throughout 2025. Recently however, that trend appears to have reversed somewhat, with revisions resulting in a cumulative upward adjustment of 66,000 jobs through the first four months of the year. The Job Openings and Labor Turnover Survey (JOLTS) has also shown improvement, with the latest report indicating that unfilled job openings have increased by a healthy 1.1 million positions since last December and are roughly 600,000 higher than they were at this time last year. Weekly data likewise point to a very stable labor market, with initial unemployment claims only slightly higher than at the end of 2025 and continuing claims modestly lower than where they finished the year.
So, are these developments evidence of a turnaround in the labor market? We do not think so. Several factors may be at work that could prove temporary in nature.
First are the immediate effects of the OBBB (One Big Beautiful Bill). The immediate expensing of new machinery, equipment, and even R&D expenditures is likely front-loading hiring and investment decisions by firms. Meanwhile, the elimination of taxes on overtime and tips may be making work in the travel, leisure, and restaurant industries more attractive, thereby making it easier for employers to fill lower-wage hourly positions.
Second, geopolitical developments and the conflict in the Middle East may be placing additional demands on the military supply chain, positively affecting defense-related contracting activity and hours worked. At the same time, higher oil prices are likely stimulating activity within the energy sector and throughout its supply chain.
Finally, preparations for and the lead-up to the FIFA World Cup are likely providing a temporary boost to the travel and leisure industries, further reinforcing the positive effects from the tax treatment of tips and overtime discussed above.
In addition, we are seeing some important divergences in the monthly employment surveys conducted by the Department of Labor. The monthly Employment Situation Report is derived from two separate surveys: the establishment survey, which produces the widely cited nonfarm payrolls figure discussed above, and the household survey, which measures the employment status of individuals. While the establishment survey measures the number of payroll jobs, the household survey measures the employment status of individuals and provides a broader view of labor market conditions, including labor force participation, unemployment, and the number of people outside the labor force. On that basis, the household survey tells a less favorable story than the headline payroll numbers. Compared with May 2025, the civilian labor force is down by 414,000, the number of employed individuals is down by 473,000, the number of unemployed persons is up by 59,000, and the number of people not in the labor force has increased by more than 2.0 million. In addition, the number of people outside the labor force who currently want a job has risen by 179,000 over the same period. Taken together, these figures suggest that the labor market may be less robust than the nonfarm payroll data alone would imply.
A particularly concerning subcomponent of the household survey is the number of people usually employed full-time. Full-time employment has deteriorated meaningfully over the past year, falling by approximately 600,000 individuals. More troubling, however, is the longer-term trend. The three-year change in full-time employment has now turned negative, meaning there are fewer people employed full-time today than there were three years ago (see Exhibit below). Such an outcome is relatively rare outside periods of significant economic weakness and suggests that the deterioration in labor market conditions may be broader than the headline payroll figures imply. These data point not only to a slowing labor market, but potentially to recessionary conditions emerging beneath the surface.
Taken together, we believe the recent improvement in labor market indicators should be viewed with caution. While payroll revisions, job openings, and weekly claims data have stabilized or improved modestly, much of that strength may be attributable to temporary factors that are unlikely to provide a lasting foundation for employment growth. At the same time, the household survey continues to point toward weakening labor force participation, softer employment growth, and a decline in full-time employment that has now extended beyond a typical cyclical slowdown. As these temporary supports begin to fade, the underlying condition of the labor market should become more apparent. For now, we remain skeptical that the recent data represent the beginning of a sustained labor market reacceleration and continue to view the balance of evidence as more consistent with the early stages of an economic downturn than with the beginning of a new hiring cycle.
There is also a longer-term structural issue that warrants consideration. While the deterioration in the household survey may reflect cyclical weakness in the labor market, demographic trends are becoming an increasingly important part of the employment story. Growth in the U.S. labor force has slowed markedly in recent years as the population ages, fertility rates remain below replacement levels, and labor force participation among older cohorts continues to decline. While the United States is not yet facing the outright population contraction experienced by Japan, nor the degree of demographic stagnation now confronting parts of Europe, it is beginning to encounter many of the same challenges associated with a slower-growing workforce. As a result, some portion of the recent weakness in labor force growth may be structural rather than cyclical. We intend to explore these demographic trends in greater detail in a future commentary, as they are likely to have important implications not only for employment growth, but also for economic growth, inflation, interest rates, and long-term investment returns.
As always, stay tuned.
Ardavan Mobasheri
Chief Economist
