The Labor Department’s unemployment rate has been easing in recent months, reversing last year’s climb. In July it fell to 4.1% from 4.2% in June and 4.5% in November. Friday’s August jobs report is expected to show the rate holding at 4.1% while nonfarm payrolls rise by about 50,000, rebounding from July’s unexpected 23,000 decline.
Despite soft recent hiring, the official jobless rate has declined as retiring baby boomers and tighter immigration policy shrink the overall labor force. The breakeven pace of job growth—the net new positions needed each month simply to keep unemployment steady—turned slightly negative at times in the summer and fall of 2025. Economists expect a similar dynamic in 2028, meaning the economy could shed workers and still hold the unemployment rate steady. Jobless claims have also stayed low, reflecting a cautious low-hire, low-fire environment amid tariffs and geopolitical tensions.
The official rate is now low enough that Federal Reserve officials view the labor market as at or near full employment. Chairman Kevin Warsh underscored that assessment in his Jackson Hole speech on Friday. As a result, the Fed’s focus has shifted firmly toward controlling inflation rather than supporting employment.
The Ludwig Institute for Shared Economic Prosperity (LISEP) paints a less optimistic picture. Its True Rate of Unemployment tracks the “functionally unemployed”—people without jobs, those working part-time involuntarily, and those earning poverty-level wages. That measure rose for a fourth straight month in July, reaching 24.9% and climbing 1.3 percentage points since March. LISEP’s broader gauge of the working-age population that is not functionally employed—including those who have left the labor force—stood at 53.8%, up 0.8 percentage points since the start of the year.
“Functional unemployment is moving higher while workforce participation is moving lower,” LISEP Chairman Gene Ludwig said in an Aug. 20 statement. “If this continues, it would suggest the labor market is losing strength despite what we may see in the headline unemployment numbers.”
Demographic patterns varied. The functional unemployment rate for Black workers held steady at 27.3%. It rose 0.6 percentage points to 23.8% for White workers and fell 1.5 percentage points to 26.7% for Hispanic workers. Among men, the rate dropped 0.9 percentage points to 19.5%, while for women it jumped 1.6 percentage points to 31%—the highest level since March 2021, when the economy was still recovering from the pandemic shock.
These divergences may reflect competing forces in the economy. Strong demand for construction and skilled-trades workers—driven in part by the AI infrastructure boom—has favored traditionally male-dominated occupations. At the same time, strains in family-care services have pushed many women out of the workforce or into reduced hours.
“In a strong labor market, good jobs and rising wages should bring more people into the workforce, not fewer,” Ludwig said. “We need to pay attention when that starts moving in the other direction. It could be a sign that people aren’t finding the opportunities they want or need, which matters for the broader economy.”
The AI Economy Is Like a Bad Dating App
Amy Webb on pilot purgatory, insta-decks, and why the reckoning is coming
The Core Problem
Every CEO Amy Webb talks to is **buying abundance — and none are budgeting for its cost.** Webb, who speaks with 100–150 CEOs a year, sees a bust coming for corporate AI spending:
> "AI is making production cheap, but it's making everything else in companies much more expensive."
Three Symptoms of the Dysfunction
**1. Pilot Purgatory**
Endless generative AI pilots that never scale — like dating apps designed to keep you swiping, never marrying. One client ran 14–15 pilots using Amazon's "two-pizza rule." None scaled. *"They've gone through a lot of pizza."* Pilots launch without legal or IT integration, so companies restart from zero every time.
**2. Drowning in Decks**
"Insta-decks" — presentations that took a week now take a day, but teams receive 5x more of them. The result: decision paralysis from too much analysis, not too little. The more a company uses these tools, the more generic the output.
**3. Harvested Nothing**
Webb's question to every CEO: *If AI freed up 10% of your capacity tomorrow, where would you deploy it?* **So far, nobody has an answer.** No one owns the job of converting productivity gains into anything real.
The Data
- **Bain & Company (951 companies):** ~40% of firms measuring AI savings landed **below 10%** — against targets of 11–20%
- **Yet 90% are increasing AI budgets anyway**
- **Oxford Economics:** AI-cited layoffs = just 4.5% of U.S. job losses (Andreessen's "75% overstaffed" claim is largely a silver-bullet excuse for pandemic-era overhiring)
Why It's Worse Than Dotcom
- **Wrong leaders, wrong tech:** "No CEO was hired because they're an expert in AI." AI is an umbrella of many technologies — you can't go with your gut.
- **Not a normal bubble:** It's not just a market crash. "It's like the economy makes weird decisions" — a kind of economywide hallucination.
- **Cognitive offloading:** When AI does the reasoning, people lose ownership of the work — and nobody's learning anything.
The Timeline
Webb expects the reckoning **as early as next year**, as Wall Street starts demanding measurable results from pilots. Look for "cracks" via missed targets in the next two quarters.
> **Webb's bottom line:** "This is immediate satisfaction, followed by: can I productize this? Can I put it in a workflow?"
>
> Her consulting business, meanwhile, has never been better. "When there's horrific uncertainty out there, uncertainty is what we do."