A deeper look at US labor market trends may be showing a greater cooling of the US economy than appears on the surface. While monthly payroll reports and the 4.2% unemployment rate seem to be resilient, Garrett Melson, Portfolio Strategist, Natixis Investment Managers Solutions, warns that such resiliency may be overstated.  “The root of the problem is a labor market in stasis with hiring, quits, and layoffs at depressed levels. With momentum at a standstill, it doesn’t take much in the way of layoffs to push the unemployment rate higher,” said Melson. The Beveridge Curve, which shows the relationship between labor demand – in the form of job openings and the unemployment rate – is showing signs of concern, too. 

Beveridge Curve 1/31/01 - 4/29/25

• The Beveridge Curve has been following a largely vertical path, as labor demand has cooled off from the tight labor market of 2021-2023.^* 

• But as incremental softening in labor demand translates to more meaningful upward pressure on unemployment, the Curve is now approaching levels where it flattens out, says Melson.

• Overall, the labor market remains in stasis with anemic hiring rates, despite low layoffs, translating to a slow, but steady, grind higher in the unemployment rate.