9 minute read
Key Takeaways
- The U.S. job market slowdown isn’t new — it’s been unfolding for years.
- Job revisions show nearly 1 million jobs overstated between March 2024–25.
- Healthcare hiring is masking weakness; outside of it, the economy shed over 140,000 jobs in four months.
- ADP vs. BLS jobs data reveal a widening gap: private sector shrinking, government jobs rising.
- The BLS Birth-Death model inflates jobs through flawed assumptions.
- The Fed risks steering policy with lagging, constantly revised data.
- This environment could tilt into stagflation — sticky inflation, rising unemployment, and weak growth.
Is the job market falling apart?
I don’t ask that lightly. Because this week’s labor revisions were far uglier than anyone expected.
Yet the mainstream media seems surprised, as if this weakness just appeared.
But it didn’t.
I’ve been saying for over a year that the labor market was already decelerating faster than many realized. Back in July 2024, in my piece “The Labor Market is Looking Fragile – Here’s What the Mainstream Doesn’t Talk About,” I showed how leading indicators were already flashing red.
- Remember, a leading indicator is something that moves before the rest of the economy - like consumer spending or exports. They’re the early shakes before the earthquake.
- Whereas a lagging indicator is what shows up only after the damage has already happened - think GDP and jobs data. They’re the aftershocks that reverberate later.
That’s the problem with the jobs report. By the time it confirms a slowdown, it’s already old news. You’re looking at history, not the present.
- Think of it like starlight - when you look at the night sky, you’re not seeing the stars as they are now, but as they were many years ago (the light is just now catching up).
Tariffs since April 2025 added fresh uncertainty. And businesses hate uncertainty - it freezes decisions and hurts job growth.
But tariffs weren’t the spark. They were just the match on a pile of dry kindling.
Because the truth is, the U.S. labor market had already been cooling long before.
- Pandemic savings are gone.
- Debt loads are heavier.
- Inflation is sticky.
- Interest rates are higher.
The problems were spreading well before the headlines finally caught up.
The Labor Market Is Slowing - But This Isn’t New
“Sure, the labor market has cooled the last three months. But it’s been hot for years, hasn’t it?”
Yes. And no.
Remember - economic trends move in long cycles, not quick zigzags.
- In a boom, momentum drifts upward (like stomping the gas)
- Eventually, the car hits peak speed. You can’t press harder, and the fuel runs low
- Then comes deceleration - the slowdown feels inevitable
- And until there’s a new tank of gas (a massive rate cut or government stimulus), the car sputters near empty and eventually stalls
Then comes deceleration - the slowdown feels inevitable
And until there’s a new tank of gas (a massive rate cut or government stimulus), the car sputters near empty and eventually stalls
And that’s not what I’d call vitality.
Zoom out further, and the trend is obvious - job growth has been decelerating steadily since peaking in 2021.
Figure 1: BLS, Dunham, September 2025
So yes, the tank’s been running near empty for years - and the latest numbers are just confirming the trend lower. But when you dig into the details, the picture gets even uglier.
ADP vs. BLS Jobs Data: The Split in the U.S. Labor Market
Did you know that if you strip out health care - the largest employer in America (and a sector I touched on in July’s “Health Care Took Over the U.S. Job Market – Now It’s Fueling Inflation Risks Too”) - the rest of the economy has shed over 140,000 jobs in the past four months?
But what’s worse is that there are huge discrepancies even in that data. . .
- ADP Jobs Report = private-sector payroll data, based on real-time paychecks (a leading indicator)
- BLS Jobs Report = government surveys of households and payrolls that count every job - even public sector. But by the time you see it, the labor market has already moved (a lagging indicator)
There was a massive 91,000-job gap between BLS and ADP in August.
Figure 2: Bloomberg, September 2025
“Wow, that’s a big gap. But in that chart I can see that it’s been widening for years.”
Indeed it has.
These two series tracked closely in 2022–23. But ever since, they point to a deeper split in the U.S. economy.
I’m talking about government jobs rising while private sector jobs shrink.
- Since ADP only tracks private sector jobs. Where the BLS counts both private + government jobs – that indicates the gap between the two is more government jobs.
And here’s the problem - government jobs require government money. But since the government doesn’t “make” money, it means either higher taxes or bigger deficits.
You can’t run an economy on public payrolls if the private sector is shrinking - because it’s the private sector that funds the system in the first place.
Think of it like a farmer who depends on his cows for milk. If he neglects them or slaughters too many, he may get a quick burst of meat, but the steady supply of milk he needs disappears - and before long, the farm collapses with it.
U.S. Jobs Report Revisions: Nearly 1 Million Jobs Overstated
- Meaning the government had been overstating job growth significantly more than what there actually was.
To put this into context, that means monthly reports were off by about 76,000 jobs every month.
But this wasn’t a one-off. . .
The year before, we saw a -818,000 revision - also the biggest since 2008 at the time.
Figure 3: Bloomberg, September 2025
In fact – if we add it all up - payrolls have been revised down by 2.63 million jobs over the last decade - with most of the damage (nearly 2 million) in the post-COVID era.
Thus, by the time we see the revisions - it’s already a year too late.
Why Are Job Revisions So Big Lately?
Because the monthly jobs report isn’t a clean headcount.
And while the BLS has been in the headlines lately, the way it collects data has been drifting off course for years - regardless of who sits in the White House.
It’s a Frankenstein of surveys, estimates, and statistical patches. One of the biggest culprits is the so-called Birth-Death model4.
Here’s how it works.
The BLS assumes that in a “normal” economy, some businesses are born and others die every month (hence birth-death). And since they can’t track that in real time, they just plug in jobs based on historical patterns and assumptions.
But here’s the problem. The BLS does not provide any detailed information on how the model works or how it is updated.
Thus, in reality:
- Those assumptions aren’t tied to real businesses or real workers - just estimates
- It can inflate jobs higher during booms and busts - grossly underestimating the number of companies going out of business and then overestimating the number of jobs being created
- It’s not transparent. The BLS doesn’t disclose exactly how the model is built
Yet this ghost in the machine moves markets.
The Birth-Death adjustments alone can add or subtract hundreds of thousands of jobs to the monthly headline. Then months later, when real payroll tax data comes in, the revisions hit - and we see what’s what.
- Imagine a store counting products on the shelf by “what they usually get delivered,” not by what’s actually there. And when they finally open the boxes months later, half are empty.
Ironically, even the BLS admits on its website that its technique is not without flaws.
The point is, the labor market data has been messier during these volatile post-COVID years thanks to flawed models and opaque assumptions.
What Does This Mean For Markets?
Clearly, the labor market has deteriorated faster than most economists expected - especially at the Fed. And that has huge market and economic implications.
See, since 1977, the Fed’s dual mandate has been simple - keep inflation stable and unemployment low.
- That’s how monetary policy gets set - cut rates if inflation falls or joblessness rises, hike if the opposite.
But here’s the problem. . .
Sometimes, both move the wrong way together – like inflation staying sticky while unemployment climbs (just like the 1970s).
I’d argue the bigger pain point isn’t inflation currently. It’s job losses. That’s because inflation is usually a slower burn (eating away at purchasing power over time). But unemployment makes front-page headlines, ripples quickly across the economy, and even moves elections.
Which leads to the uncomfortable question I have to ask: the Fed says it’s ‘data dependent,’ but what does that really mean when the very numbers it depends on to steer interest rates are constantly revised months after the fact?
- Picture a doctor prescribing medicine based on lab results that won’t be corrected until months later. By the time the true diagnosis arrives, the patient’s condition has already changed.
If so, then even if they cut rates tomorrow, we may already be months into a recession - too late to stop it.
But if they do slash rates and find that the revisions come in higher - they risk reigniting inflation.
For context, if the Fed does cut next week (September 17th) as they’re expected to - this will be the first time they’ve done so when inflation was above 2.9% in over 30 years.
Figure 4: St. Louis Federal Reserve, Dunham, 2025
It’s a classic catch-22. Damned if they do, damned if they don’t.
Final Thoughts
The consensus says the labor market “just started slowing.”
But that’s not right.
The trouble has been spreading for years - masked by messy data collecting, flawed models, and a government sector carrying far more than its share of the weight.
Revisions only peel back the curtain on what leading indicators have been showing us all along - that this trend isn’t new, it’s just finally undeniable.
This could tip the economy into stagflation - that toxic mix of sticky inflation, rising unemployment, and weak growth all hitting at the same time.
So, the real surprise isn’t that the slowdown is here. It’s that anyone is still surprised at all.
As always, this is just some food for thought.
FAQ:
What do U.S. jobs report revisions mean?
They reflect adjustments to BLS data after payroll tax info comes in, often revising job growth lower.
Why is ADP jobs data different from BLS?
ADP tracks private payrolls in real time, while BLS includes surveys and government jobs, making it lagging and subject to revisions.
How many jobs were revised in 2025?
Between March 2024–25, the BLS revised job growth down by 911,000 — the largest correction since 2008.
Sources:
- Employers added 22,000 jobs in August, falling short of forecasts, as labor market cools - CBS News
- US Health Care Hiring Slowdown Is Warning for Broader Job Market - Bloomberg
- BLS Revisions: US Payrolls Estimated to Be 911,000 Lower in Year Through March - Bloomberg
- Birth-Death Ratio: What It is, How it Works, Criticism
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