Labor demand and supply on the decline
October 01, 2025
The market’s focus has shifted rapidly to the labor side of the Fed’s dual mandate as cooler reads from a broad swath of labor market indicators have come in during the past few months. “There’s a long and growing list of indicators suggesting the U-3 unemployment rate (official U.S. unemployment rate) may in fact be understating the degree of slack in labor markets,” said Garret Melson, Portfolio Strategist, Natixis Investment Managers Solutions. The US unemployment rate is now at 4.30%, compared to 4.20% in July.*
- Those not in the labor force, but want to work now sits at the highest levels since August 2021. This matches levels seen in 2016 when the unemployment rate was hovering around 5%.*
- “Labor supply certainly appears to be declining, but it appears to be less a function of new immigration policy and more a reflection of weakening attachment and increasingly discouraged workers as labor demand softens,” said Melson.
- For now, the trend of linear cooling continues as the labor market remains in stasis.
* Source: Bloomberg
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