Extremely low layoffs are masking a much weaker labor market
The U.S. labor market is not collapsing. That may be the problem.
Hiring has slowed sharply after a brief burst of strength earlier this year, while layoffs remain unusually low. On the surface, that combination looks reassuring: Americans who already have jobs are largely keeping them. But for people trying to enter the workforce, change careers, or recover from a job loss, the picture is considerably less comfortable.
The labor market has effectively frozen.
After adding jobs at a stronger pace during the first four months of 2026, the economy has produced only about 60,000 net jobs since May, with employment actually falling in July. Economists expect August to bring roughly 50,000 additional jobs—a historically weak result for an economy that is still expanding.
As ADP chief economist Nela Richardson put it, this is “a very still labor market.”
That stillness matters. A labor market can look stable when almost nobody is being fired, while simultaneously becoming much harder to enter.
Companies aren't firing. They're simply not hiring.
Businesses have plenty of incentives to keep payroll growth under control.
Tariffs, higher energy costs, geopolitical uncertainty and unpredictable economic policy have raised operating costs. When companies become less confident about future demand, hiring is one of the easiest expenses to postpone.
Artificial intelligence adds another layer of caution.
Employers are increasingly testing whether AI can handle tasks previously assigned to junior employees, clerical workers and administrative staff. The technology has not yet produced a massive economy-wide employment shock, but companies do not need to fire millions of workers for AI to matter. They can simply decide not to replace every departing employee.
That distinction is crucial.
Indeed's latest survey found that 52% of labor economists expect AI to be a mild drag on hiring over the next year, while 35% believe it could actually increase employment. So the immediate threat is probably not mass AI unemployment.
It is fewer opportunities for new workers.
The jobs that exist increasingly aren't necessarily new jobs
Companies still need workers. Millions of people retire, quit or change jobs every year, creating openings that have to be filled.
But replacing a departing employee is not the same thing as expanding payrolls.
That helps explain why healthcare has become one of the few reliable sources of employment growth. An aging population requires more nurses, aides, doctors and other hands-on workers—jobs that are considerably harder to automate.
The implication is uncomfortable: employment growth may increasingly concentrate in occupations where labor is physically required, while routine office and entry-level positions face slower growth.
For workers without specialized skills, that is a serious problem.
Low layoffs are hiding the weakness
The strongest argument against calling this a labor-market crisis is the extraordinarily low level of layoffs.
The unemployment rate is only 4.1%, and weekly initial unemployment claims recently fell to roughly 170,000. Apart from a brief period in 2022, claims have not been that low since 1969.
That's remarkable.
But it is also an incomplete picture.
Unemployment insurance primarily captures people who lost jobs. It tells us much less about young workers who cannot get their first job, older workers who retire, or discouraged workers who stop searching altogether.
As Navy Federal Credit Union chief economist Heather Long noted, retirees and young people struggling to find work generally aren't reflected in unemployment-benefit claims.
In other words, extremely low layoffs don't necessarily mean the labor market is healthy. They may simply mean that people with jobs are protected while outsiders have increasing difficulty getting in.
Falling unemployment isn't necessarily good news
The decline in long-term unemployment also appears encouraging. About 6.9 million people are now classified as long-term unemployed, down from 7.8 million last November.
But there is an obvious question: Where did those people go?
The economy added only around 450,000 net jobs over the same period—far fewer than would be necessary to explain the entire decline.
Some people retired. Some may have left the country. Others may have simply stopped looking for work.
Once someone stops actively searching, the government no longer counts that person as unemployed.
That creates a potentially misleading picture: unemployment can fall not because substantially more people are working, but because fewer people are participating in the labor force.
Citigroup economists have taken the more pessimistic view, arguing that declining labor-force participation is an important explanation for the lower unemployment rate.
That is a warning sign, not a victory lap.
The bigger problem may be ahead
Job openings provide another reason for caution.
Government data showed roughly 7.4 million openings in June—still a large number, but about 40% below the March 2022 peak of 12.3 million.
More importantly, private-sector measures suggest that available jobs have weakened since the spring.
Indeed expects job openings to decline modestly through the middle of 2027 and projects unemployment could rise toward 4.4%.
If that forecast is correct, the labor market isn't on the verge of a dramatic collapse. Something subtler—and potentially more frustrating—is happening.
The economy is becoming a place where losing your job may be relatively unlikely, but finding one in the first place is increasingly difficult.
That's a particularly bad environment for young workers, recent graduates, career changers, and anyone trying to re-enter the workforce.
The labor market doesn't need a wave of layoffs to deteriorate.
It can deteriorate simply by stopping the flow of new opportunities.