Is the U.S. Headed for Recession? 5 Charts That Explain the Labor Market.

Help is still wanted in Corporate America, based on recent private-sector surveys of the labor market. Above, a posting at a restaurant in Los Angeles. (Mario Tama/Getty Images)

Key Points

• The U.S. job market cooled in the past month, but private-sector reports do not indicate an imminent recession.
• The U.S. added 42,000 private payroll jobs last month, exceeding expectations and reversing September’s decline.
• The unemployment rate is estimated to be around 4.36% in October, remaining stable compared to September.

The U.S. job market cooled further in the past month, based on a raft of recently released reports. But there is no sign of a steep downturn that would suggest an imminent recession.

The latest employment data come from private-sector suppliers, including ADP, Revelio Labs, and Indeed, among others. Economists are increasingly turning to such sources amid a government shutdown that began on Oct. 1. As a result, the Bureau of Labor Statistics hasn’t published data on job-market trends for September or October, including monthly changes in payrolls, the unemployment rate, wage growth, and the average number of hours employees worked in both months.

Gauging the health of the labor market in October has proved challenging, not merely due to the government shutdown but because of the job cuts implemented earlier this year by the Department of Government Efficiency. Employees who took DOGE buyouts finally fell off federal payrolls last month, likely leading to a larger-than-normal monthly pullback in net nonfarm payrolls.

The unemployment rate, which clocked in at 4.3% for August, looks to have remained relatively stable since then, given the lack of significant weakening in the labor market. “The concern…is that when you see cooling, that sometimes it can move very rapidly,” Cleveland Fed President Beth Hammack said Thursday. “We haven’t seen that to date. Most of the data that we’re seeing still looks pretty healthy, pretty balanced.”

The five charts below delineate risks to the labor market, but also illustrate some positive points.

The U.S. added 42,000 jobs to private payrolls last month, according to the ADP National Employment Report released Wednesday morning. The total exceeded economists’ expectations, and more than reversed September’s decline of 29,000 positions.

Signs of strength in the private sector are particularly important now, as federal government jobs—formerly a growth engine—are likely to remain a drag on overall payroll growth.

“Private sector labor market data points to a labor market that has cooled but not yet broken,” writes BeiChen Lin, senior investment strategist at Russell Investments.

To be sure, the change in total nonfarm payrolls didn’t match ADP’s tally, largely because the federal government continued to shed workers. Revelio estimated the economy lost about 9,000 jobs last month.

“The biggest downward pull came from the government [sector]—but the rest of the economy is not looking too rosy either,” said Lisa Simon, chief economist at Revelio. “I think we’ll see a continuous sliding down, but not a major downward shift in the coming months.”

Challenger, Gray & Christmas data released Thursday showed 153,074 job cuts announced in October, up from the 54,064 layoffs announced in September. This marked the highest total for October in more than 20 years, the company noted. But the announced cuts weren’t widespread; they were concentrated in warehousing, retail, and the government sector.

Adam Schickling, senior economist at Vanguard, says investors should be wary of comparing the job cuts recently announced by Challenger with historical trends because web-scraping tools, on which Challenger relies, now tend to capture a larger share of layoffs and job cuts than during the 2008-’09 financial crisis or even before the Covid-19 pandemic.

“It is also important to highlight that we experience about 1.2 million layoffs a month even in a really tight labor market, all part of the normal labor market churn,” Schickling said.

Other data also showed a rise in layoff announcements last month, although Revelio Labs said the number of employees let go declined slightly from September’s figure.

Rising layoff announcements merit concern, but may not translate into notable growth in unemployment. “It’s important to note that a single layoff announcement might actually be implemented over time,” writes Russell’s Lin. “Moreover, companies could ultimately choose to lay off less workers than initially announced.”

The U.S. has experienced multiple consecutive quarters of strong earnings growth, Lin writes, noting that healthy corporate fundamentals can help to prevent a significant wave of layoffs.

Employers have shown little appetite for hiring workers since the spring, a trend that persisted in October. The number of job postings slid last month to the lowest level since 2021, based on Indeed’s data.

The number of job listings posted in October was just 1.7% above the level in February 2020 at the onset of the Covid-19 pandemic, based on Indeed’s index. That may sound disappointing, but the labor market was strong in the prepandemic period. “On its own, a return to the immediate prepandemic level in postings does not represent a sharp deterioration of the labor market, but it is certainly a departure from the postpandemic boom of 2022,” Indeed’s economists wrote Thursday.

Layoffs may be rising, but the number of initial unemployment-insurance claims filed weekly during October is on par with the levels reported in early November 2024.

Although the Department of Labor isn’t publishing claims data during the shutdown, economists estimate, based on available state data, that the current claims level reflects a continued low firing environment through the end of October.

The low level of new claims filed stands in “stark contrast” to the latest Challenger job-cuts data and shows the labor market isn’t falling off a cliff, Oren Klachkin, Nationwide’s financial market economist, wrote recently. “It’s encouraging to see the labor market remaining stable, albeit soft, in the opening month of the fourth quarter,” he wrote.

The Federal Reserve Bank of Chicago has released a series of indicators that provide a real-time estimate of labor conditions, including the unemployment rate. Its research draws on data from ADP, Bloomberg, The Conference Board, Google, and others, and describes conditions as of a fixed reference point: the week that includes the 12th day of the month.

The Chicago Fed’s latest forecast put the unemployment rate at 4.36% in October, largely in line with its reading of 4.35% for September.

The Bank of America Institute, which monitors employment conditions by analyzing the number of customer accounts receiving regular paycheck deposits, also reports that the broad employment story hasn’t changed.

Job growth held steady from September to October, BofA found. The number of customer households receiving unemployment payments eased slightly last month compared with September, which indicates there hasn’t been acceleration in job losses.

“In October we’re showing a cooling labor market, but certainly not a collapsing labor market,” says David Tinsley, senior economist at the BofA Institute. “Really, remarkably, there’s no deceleration at all in the year-on-year between October and September in our data.”

Hopefully official government data, when it is eventually released, will tell the same story.

Write to Megan Leonhardt at megan.leonhardt@barrons.com