Labor market slowdown adds to uncertainty for rest of 2025
Writer: Mirella Franzese
August 2025 — Layoffs are rising at twice the rate seen last year as AI and recession fears continue to disrupt multiple industries. Now the U.S. is reporting worse-than-expected job growth, according to the Labor Department’s revised numbers, and businesses are seriously considering delaying hiring plans.
“We know the economy has ups and downs, and we’re in a pretty stagnant place right now,” said Laura Ullrich, director of economic research for Indeed North America, told CBS MoneyWatch.
According to the latest revisions from the Bureau of Labor Statistics (BLS), the U.S. added just 73,000 new jobs in July, falling well below expectations. While not every sector recorded losses, nearly all of the gains came from healthcare and social assistance, industries that tend to be more recession-proof. At the same time, the BLS updated its federal employment data to reflect a sharp drop-off in hiring in the two previous months.
Under the revisions, the U.S. added a combined 33,000 jobs in May (19,000) and June (14,000), reflecting broader labor market softening and reigniting public interest in the topic. An analysis of Google Trends data shows that searches related to “U.S. employment” peaked at their highest point in 90 days on Aug. 1, coinciding with the BLS report release. (The chart denotes a topic’s popularity based on search interest on a scale of 0–100.)
Experts believe the U.S. labor market is waning due to ongoing tariff uncertainty, which has increased the likelihood of another Federal Reserve interest rate cut by September.
“This is not a healthy job market,” said Heather Long, chief economist at Navy Federal Credit Union, in an email to CBS. “The economy needs certainty soon on tariffs. The longer this tariff whiplash lasts, the more likely this weak hiring environment turns into layoffs.”
Layoffs in 2025 have already reached their highest level since the pandemic, with a total of 744,000 firings as of June, according to a new report by the executive outplacement firm Challenger, Gray & Christmas.
These cuts have disrupted multiple sectors of the U.S. economy, including tech, retail, healthcare and finance, though tech and retail were among the most severely impacted. Tech dismissals alone spiked by 27% compared to 2024 levels, while layoffs in the retail sector surged to 79,900 in June 2025 from 22,500 in June 2024. Large corporations like Microsoft, Intel, Walmart and Amazon all made significant workforce reductions this year.
Although as of June, the federal government laid off more employees than any other industry in 2025, surpassing 288,600 discharged workers. According to Ogletree Deakins’ Tampa Bay Office Managing Shareholder Karen Morinelli, this unprecedented wave of discharges was largely driven by President Trump’s executive orders and terminations of agency personnel.
“The recission of Executive Order 11246 eliminating affirmative action requirements for federal contractors has resulted in deferred resignations or administrative leave for most of the agency’s employees,” Morinelli told Invest:.
Federal government employment dipped by a further 12,000 workers in July — bringing the total number of workers lost up to 84,000 since reaching a peak in January, as reported by the BLS.
For most U.S. companies, this labor market downturn means delaying hiring until uncertainty is diminished in an effort to cut down on costs.
“When the economy is down, clients need help with layoffs, reductions in force, and compliance. When things are booming, they need assistance with hiring and scaling up,” Akerman LLP’s Palm Beach Office Managing Partner Christopher Duke told Invest:.
The Federal Reserve’s Beige Book report, which collects commentary on current economic conditions from businesses, also suggests companies are putting a pause on hiring until gaining further clarity from U.S. policy and the economy.
While reducing staff during times of economic uncertainty can significantly cut expenses for businesses through savings on salaries and benefits, high employee turnover rates can be even more costly. In fact, turnover costs U.S. businesses an average of $36,723 annually in rehiring expenses and lost productivity.
“Hiring when times are good and layoffs when they are bad. That is a terrible model,” noted John McDonald, senior managing director and co-founder of investment bank Kensington Park Capital, in an interview with Invest:.
READ MORE: Why turnover is costing your business more — and how to fix it
However, nearly half of U.S. companies said they planned to reduce staff or implement other cost-saving measures — including reducing bonuses, office space, benefits or salaries — as early as January of this year, according to a study by AZ Big Media.
Fifty-one percent of companies surveyed said they were motivated to lay off workers due to the possibility of an economic downturn, although 39% also cited other industry-specific challenges, such as AI, automation and overstaffing. Twenty-eight percent of companies also said they intended to replace current workers with lower-cost employees — or alternately discharge and rehire workers at lower starting salaries.
Hiring appetite remained similarly mixed through 2Q25, as revealed by the latest Invest: Business Sentiment Survey (I:BSS), which polled more than 150 business leaders from key U.S. markets. While hiring plans in Northern markets rose by 12% from the previous quarter, Southern markets were bearish on staffing increases, reflecting a dip of 13% quarter over quarter.
All in all, more Americans are exiting the labor market and struggling to re-enter it now than they were a year ago, according to J.P. Morgan’s May outlook. This means workers are finding it harder to get new jobs, while businesses are being forced to scale back on expansion plans — potentially stalling long-term revenue growth.
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