Is job growth just slowing from post-pandemic highs? Or headed for a crash?

When Samantha Griswold graduated from college in May 2023 with a degree in fashion merchandising, she figured she would have a job by that summer.

She was passionate about fashion, had logged part-time gigs at stores such as Forever 21 and Famous Footwear and began firing off applications “like crazy” months before her graduation.

“I woke up and sent out applications until I went to sleep,” said Griswold, 25, who lives in Chino Hills, California.

The intensive job search appeared to pay off. She snared about three interviews a week, and often made it to the second round. But she never made it past that benchmark. Hiring managers frequently told her she was edged out by candidates with more experience. About a year ago, the interviews dwindled to one or two a month.

Griswold finally landed a merchandising position at Saks Fifth Avenue last month. But 20 months of hunting for a job took a toll.

“It was affecting my mental health,” she said. “I was having trouble sleeping. It was hard for me.”

As the nation celebrates Labor Day, a job market that was red hot amid unrelenting post-pandemic worker shortages has decidedly cooled. Americans are working harder to find positions. They have less leverage to negotiate higher salaries, good benefits and flexible work setups with their prospective employers. And they’re feeling less secure and more nervous about layoffs in their current roles, according to online job boards, staffing companies and the government.

Is the job market cooling off?

Job growth overall is still solid, averaging 170,000 a month since April, but that’s down from 227,000 the first four months of the year and 251,000 in 2023. And aside from a handful of sectors – notably government, health care and construction – payroll gains have been feeble.

Last month, U.S. employers added just 114,000 jobs, well below the 175,000 projected, and the unemployment rate leaped from 4.1% to 4.3%, highest since fall 2021. The developments triggered recession fears and a steep market sell-off until encouraging data on retail sales and layoffs calmed nerves. The Labor Department’s recent preliminary revisions renewed some of the worry, revealing the economy added an average 174,000 jobs a month in the year ending this past March, down from the 242,000 first estimated.

Why is it hard to get jobs right now?

Most top economists believe job growth is simply downshifting from its frenetic post-COVID pace now that employment has caught up to where it would have been if the health crisis hadn’t happened. But it’s also wobbling as easing, but still elevated, inflation and the Federal Reserve’s historically high interest rates to fight the soaring prices take a growing toll on business investment and hiring. Meanwhile, the presidential election has generated uncertainty about future economic policy, causing many companies to hold off on hiring and spending.

At the same time, wage growth continues to outpace inflation, giving Americans more purchasing power and supporting consumer spending, which makes up 70% of the economy and drives hiring.

“The labor market has definitely slowed,” said economist Dante DeAntonio of Moody’s Analytics. “I don’t think we’re on the precipice of calamity.”

Will the job market get better in 2025?

With the Fed expected to start cutting its key interest rate in September and reduce it by as much as a percentage point this year, DeAntonio believes lower borrowing costs and the policy certainty provided by the November 5 election will bolster payroll gains just in time to stave off a downturn.  

Yet while he’s not looking for net job losses, DeAntonio expects monthly job growth to slow to 100,000 by early next year and 50,000 by the end of 2025, hovering around that level for the long term as baby boomers continue to retire in droves.

Julia Pollak, chief economist at job board ZipRecruiter, agreed the economy will likely achieve a “soft landing” that lowers inflation while avoiding recession and shrinking employment totals. But the labor market “has slowed a bit too much,” she said, with key measures falling below pre-pandemic thresholds.

“The risks have increased,” she said, adding the Fed has kept its benchmark rate too high for too long. “This is just a precarious time.”Total job growth remains sturdy and the number of U.S. job openings, though declining, is above pre-pandemic levels. But hiring has dipped below its pre-COVID mark, Labor Department figures show.

 “We’re seeing a tremendous amount of hesitation and uncertainty” among employers, Pollak said.

Are people struggling to find work?

Job seeker confidence, in turn, is flagging, according to a ZipRecruiter survey. Many people who have jobs are hunkering down, with the share quitting to take new positions below the pre-COVID level, according to the Labor Department.

Others, such as those who are unemployed or worried about getting laid off, are job hunting more aggressively. In the second quarter, 43% of job seekers said they were actively searching for work, up from 37% late last year. And 63% said they felt financial pressure to take the first job offer, up from 58% early this year, ZipRecruiter said.  

In June, workers’ confidence in their career progress dropped to the lowest level since July 2020, according to a LinkedIn survey.   

'I just think people are being very cautious'

Shawn Williams, of Silver Spring, Maryland, has held various jobs in the cannabis industry since 2018, including in social media, fulfillment, patient care and technology. Yet since losing his last position in mid-June, Williams has sent out three applications a day but notched interviews with just one employer. He initially targeted cannabis companies, then broadened his search to include any firm that could use his diverse skills. He then began applying for nearly any job, including grocery store stocker and store cashier.

“Most of the time, I’m not hearing (back) anything,” said Williams, 29. “I just think people are being very cautious right now and just trying to do what they can to save money.”

Williams, who has a roommate, said his income from unemployment insurance is less than half of his cannabis job earnings. He’s struggling to pay his share of the rent and other household bills, borrowing money from his family and no longer eating out.

“It’s tough,” he said. “I just got to keep doing what I’m doing.”

Who has more bargaining power?

Even those who are landing jobs aren’t wielding the bargaining power they enjoyed during the job-hopping frenzy some called the"great resignation" in 2021-2023. Only 26% of new hires negotiated their offers in the second quarter, down from 43% early this year, and the share receiving signing bonuses was halved to 14%, ZipRecruiter said.

Employers, chilled by high borrowing costs that discourage investment in new factories or product lines and election-related uncertainty, are still hiring but mostly to replace workers who have left rather than create new positions, said Ger Doyle, head of staffing firm Experis US, a unit of ManpowerGroup.

Which fields are in demand?

Even when addressing vacancies, businesses are bringing on high-skilled workers in growing fields like technology, engineering and health care, said Doyle and Janis Petrini, owner of Express Employment Professionals franchises in Grand Rapids, Michigan. For administrative roles in sectors such as banking, human resources, finance, legal and marketing, many companies are relying on artificial intelligence to perform tasks previously done by employees or leaving jobs vacant for now, Doyle and Petrini say.

At Experis, job placements are down 11% from last year, Doyle said. Petrini said she’s placing about 200 candidates a month, in line with pre-COVID numbers and down from about 1,000 during the "great resignation."

“Things are back to 2019” levels, Petrini said.

Many employers are still adding new white-collar jobs, said Michelle Reisdorf, a district director at Robert Half, a recruiting firm in Chicago. In the firm’s June survey, 52% of companies said they planned to do so in the second half of the year, but that’s down from 63% a year ago. Hiring has slowed, she suggests, in part because employers are adopting a “more measured” approach, taking longer before making offers and ensuring candidates’ skills match job requirements.

During the Great Resignation, they were snapping up applicants before other companies grabbed them.

Many businesses are also taking more time to hire determine if artificial intelligence changes the skill sets required for many jobs, said Karin Kimbrough, LinkedIn’s chief economist. And they’re figuring out to what extent employees need to be in the office versus continuing to work at home, she said.

“There’s a lot in flux,” Kimbrough said.

Are more layoffs coming in 2024?

Despite the hiring pullback, net job growth has stayed solid largely because layoffs have remained low, at least based on initial jobless claims, a reliable gauge. Many economists have attributed the rising unemployment rate to a surge of people into the labor force – the pool of those working and job-hunting – especially by immigrants.

But permanent layoffs have gradually increased and were up 20% in July compared to a year earlier, Labor Department figures show. The average expected likelihood of becoming unemployed in the next four months rose from 3.9% a year ago to 4.4% in July, the highest on records kept since July 2014, according to a survey by the Federal Reserve Bank of New York.

Leslie Shields, owner of the Shields Agency, a health insurance brokerage in Fort Worth, Texas, raised wages 40% since 2019 to compete with rivals even while health insurance giants trimmed her commissions or switched to flat fees. Because of the profit squeeze, Shields was forced to lay off three employees early this year, trimming her staff to six, instead of adding one or two as she normally does.

Shields, in turn, asked her remaining employees, such as brokers and an operations director, to do some administrative tasks along with their regular jobs.

“We believe it’s the right move to keep our business running smoothly without stretching our resources too thin,” she said.

Others are simply scaling back hiring.          

Tom Bemiller, CEO of the Aureus Group, which owns three auto body shops in the Philadelphia suburbs, planned to add four workers to his staff of 37. But many customers who get into accidents are pocketing the checks they receive from insurance companies instead of getting the repairs done, using the money to cope with high inflation, Bemiller said.

As a result, the wait for auto body repairs had decreased to two or three days from two to three weeks, and Bemiller said he no longer needs to add employees.

“People are just uncertain about the economy,” he said, adding he thinks customer behavior will return to normal after the election.

Meanwhile, the hiring slowdown means unemployed people are taking longer to find jobs. The median duration of unemployment was 9.4 weeks in July, still historically low but up from 8.9 weeks a year earlier. That’s reducing their spending, curtailing company sales and raising the odds that businesses could further scale back hiring or possibly cut some workers in the months ahead.

Here's the big question: Will a drop in interest rates and greater political certainty change that dynamic in time to head off a labor market downturn?