Unemployment Holds Steady, But Weaknesses Are Showing

According to the Labor Department’s May nonfarm payrolls report, employment in the U.S.’ private sector increased in May by 139,000 jobs, keeping the unemployment steady at 4.2%. Although growth is always good, the number of jobs added was less than the 147,000 anticipated as recently as April.

However, the numbers get less rosy the further down you drill. According to Dow Jones Data, although economists forecasted 110,000 new jobs for last month, the jobs added were woefully fewer (37,000 private sector) than hoped for. Small business employment shrank by 13,000, with manufacturing employment dropping by 3,000.

Although unemployment has been holding steady at 4.2%, Goldman Sachs economists forecast an unemployment rate of 4.5% by September. With continued uncertainty compounded by on-again, off-again tariffs, any predictions made today may be irrelevant tomorrow.

100,000 Jobs Per Month

As explained in a Reuters article by Lucia Mutikani, “The economy needs to create roughly 100,000 jobs per month to keep up with growth in the working age population. That number could decline as President Donald Trump has revoked the temporary legal status of hundreds of thousands of migrants amid an immigration crackdown.”

Hoarding

To muddy the waters even more, Reuters goes on to proclaim, “Much of the job growth this year reflects worker hoarding by businesses amid Trump's flip-flopping on tariffs, which economists say has hampered companies' ability to plan ahead.”

To clarify, job, or “labor” hoarding refers to a situation where companies retain employees even when they might otherwise be considered non-essential or when a downturn would lead to layoffs.

There are several reasons why companies resort to labor hoarding.

·     Strategic Retention: Companies may choose to hold on to employees to avoid the costs and disruptions associated with layoffs, especially during economic uncertainty or when they anticipate a quick rebound.

·     Talent Market Scarcity: In a tight labor market, companies might prefer to keep their existing talent rather than risk the difficulty and cost of finding and training new employees.

·     Knowledge and Experience: Experienced employees often possess valuable knowledge and experience about the company's operations and culture. Laying them off could disrupt processes and require a significant investment in time and training to rebuild that knowledge.

·     Reduced Turnover Costs: Laying off employees incurs the cost of severance packages and the cost of replacing them, including recruiting, interviewing, and on-boarding.

·     Employee Morale: By retaining employees during difficult times, companies can signal to their workforce that they value them and are committed to weathering the storm.

In fact, Sara Jensen, Senior VP of Growth and Strategy for Innovative Employee Solutions, states that nearly 90% of small businesses are engaged in labor hoarding. A Skynova Survey agrees, reporting that a majority of 1,010 business owners in the survey (21% large, 22% medium, and 57% small businesses) say they are practicing labor hoarding.

Coming full circle, labor hoarding impacts the job market by papering over weaknesses in the market. While GDP growth is declining, unemployment has remained stable, even though job growth is slowing.

Tariff Slowdown

Due to disruptions and uncertainties stemming from Washington, economists anticipate a slowdown in the labor market. As reported in The Job Hopper, by digging a little deeper, cracks appear. They write that, “The labor force participation rate and the employment-population ratio both ticked lower last month. Meanwhile, the Bureau of Labor Statistics revised March and April’s tallies to reflect 95,000 fewer jobs added than previously reported.

As has been the case in recent reports, employment gains are also concentrated in just a few industries. Just three saw growth this month: healthcare, leisure and hospitality, and social assistance. Business and professional services, which typically shows faster occupational growth than the average across industries, has been flat for months.”

How to Weather the Storm

There isn’t a full-blown economic gale, but the storm-warning flags are being raised. David Zybin, writing in Forbes, recommends Opportunity Identification Amid Disruption as part of your 2025 strategy. “Economic uncertainty creates displacement. Customer needs shift. Competitors struggle. Talent becomes available. Market gaps emerge. The businesses that thrive during turbulence actively scan for these opportunities.

Develop formal processes for capturing market intelligence. What are customers requesting? Which competitors appear vulnerable? What adjacent markets are experiencing disruption? Regular review of these insights can reveal strategic opportunities.

Maintain investment capacity for opportunistic moves. This might mean preserving cash reserves or establishing dedicated innovation budgets that remain protected even during challenging periods. The ability to act decisively when opportunities arise separates market leaders from followers.

Consider strategic partnerships that expand capabilities without significant capital investment. Other businesses facing similar challenges may be open to collaborative arrangements that create mutual benefits and shared risk.

Talent acquisition represents a significant opportunity during economic uncertainty. Organizations that can attract and retain key capabilities while competitors retrench position themselves for accelerated growth when conditions improve.”

How Can ASN Help?

As your strategic partner, we are always ready and available to advise you on business strategy. Our professionals continually track key economic trends to inform us of the current conditions and how they may impact your business. If you would like to meet with us to review your business strategies and goals,