In our June commentary[1], we highlighted growing concerns about a deteriorating labor market, pointing to the persistent pattern of downward revisions to initially released employment data. At the time, headline figures still appeared resilient, but repeated revisions were already signaling that underlying labor conditions were weaker than first reported. That dynamic has continued to this day, reinforcing our earlier assessment and underscoring that the apparent stability in employment has increasingly relied on preliminary data that is later revised lower as more complete information becomes available.
That uncertainty has been compounded more recently by disruptions to the regular publication of key U.S. economic indicators following the 2025 federal government shutdown. The 43-day lapse in funding interrupted data collection across several federal statistical agencies, creating delays, omissions, and irregular releases for critical labor market reports. Most notably, the household employment survey was not conducted during the shutdown, meaning that no official unemployment rate will be published for October. The most recent available figures show the unemployment rate at 4.4 percent in September 2025, the highest level since 2021, leaving investors and policymakers with an increasingly incomplete and backward-looking view of labor market conditions at a time when they appear to be deteriorating.
In parallel with the gaps and delays in the official data, our proprietary labor market indicator (See Exhibit below) has continued to weaken in a way that is consistent with a broader deterioration in employment conditions. After remaining relatively stable over the prior twelve months, the indicator has now fallen to its lowest level since late 2021, resuming the downtrend that first began in 2023. This recent decline suggests that underlying labor market momentum has been eroding even as headline measures temporarily masked the shift. Importantly, this indicator has a long track record as a leading signal for monetary policy, having consistently turned ahead of changes in the federal funds rate since the early 1990s.
Several underlying factors help explain the recent deterioration in our labor market indicator, each pointing to a broadening slowdown beneath the surface of the headline data.
Taken together, these signals suggest that while the labor market has not yet deteriorated to levels typically associated with a full recession, it is likely as weak as it can be without the broader economy already being in contraction. Employment conditions appear to remain under pressure, reinforced by ongoing softness in hiring, elevated layoffs, and continued downward revisions to prior data. In this environment, the Federal Reserve’s pivot toward prioritizing employment over inflation appears well founded, supporting continued interest rate cuts and looser monetary policy aimed at preventing labor market weakness from becoming more entrenched.
As always, stay tuned.
Ardavan Mobasheri
Chief Economist
