The Cracks Begin to Show on the US Labor Market

November 11th, 2025
Daniel Song

In early November, outplacement firm Challenger, Gray & Christmas reported that corporations announced a 183.1% monthly increase in layoffs, primarily driven by cost-cutting measures and the adoption of AI. However, Bank of America’s October report was more optimistic, finding that the job growth stayed steady in October with no increase in unemployment. In addition, the payroll-processing company ADP reported that the US added 42,000 private-sector jobs in October, an improvement from a loss of 29,000 jobs in September. Combined, these analyses indicate that the US labor market is weakening but not collapsing. For example, the Chicago Federal Reserve’s latest estimate put the unemployment rate at a still-low 4.36%.

However, there are more specific areas of concern underneath the topline numbers. Principally, due to the government shutdown, all government data on hiring, spending, wages, prices and other areas has slowed or stopped entirely, forcing policymakers and businesses to rely on a patchwork of measures to fill the gaps. For example, the Bureau of Labor Statistics has not collected any data since the shutdown began on October 1, and even when the government reopens, it will take time to restart the data collection process and publish the figures. Further, private sector measures such as ADP’s payroll reports have limitations, chiefly that there is not much reliable private-sector data on the price of services such as medical procedures, haircuts, and interior decorating.

In addition, the private-sector jobs figure from ADP excludes government workers, who have been significantly impacted by the Trump administration's mass firings of federal workers. By the administration’s own estimate, over 300,000 federal workers will have lost their jobs by the year’s end, contributing to rising unemployment as these workers struggle to find new jobs. Indeed, an estimated 100,000 people left federal employment by the end of September, but those losses will not show up in BLS data until the next survey data are released after the shutdown ends. Trump’s tariffs have also affected the job market, with the latest estimates projecting the unemployment rate to rise by 0.3% and payroll employment to be 490,000 by the end of 2025. In terms of the drivers of unemployment, recent research from the Yale Budget Lab has found that, overall, exposure to AI is not a major driver of unemployment or employment since the release of ChatGPT in November 2022. However, for select sectors such as white-collar professional jobs, workers may be more impacted, with Amazon alone planning to lay off 14,000 workers. Partly driven by AI adoption, companies have increasingly been willing to let go of workers instead of holding on to them in fear of being unable to hire them back later.

Beyond job losses, employers have also been less willing to hire new workers as US job openings fell to a ten-month low of 7.181 million, a 176,000 decrease from the prior month. In addition, as consumer sentiment continues to drop, companies have been cautious about expanding their operations in the event of an economic downturn.

Yet, two caveats to the weakening labor market may buttress it. First, the Federal Reserve may keep cutting interest rates to stimulate the economy to boost employment. In late October, the Fed’s latest 0.25% rate cut brought interest rates below 4% for the first time since late 2022. However, many Fed officials are hesitant about continuing cuts as inflation remains above the 2% target. Second, recent changes in the US economy, including reductions in immigration and changes in labor participation, have lowered the monthly break-even employment figure—a measure of new jobs needed to keep the unemployment rate stable has decreased from 250,000 in 2023 to about 30,000 in mid-2025.

Extemp Question: What will the end of the government shutdown mean for the future of the US labor market?