Nearly 28% of unemployed Americans had been out of work for six months or more by May, the highest share in four and a half years, even as the unemployment rate held at 4.2% in June. The share dipped slightly in June but remained elevated, revealing a growing divide between headline numbers and the reality facing workers trying to enter or re-enter the labor force.
The Labor Department's July employment report, released Friday, was expected to show employers added nearly 98,000 jobs last month, up from just 57,000 in June. That'd be an improvement, but it's still anemic. The economy generated fewer than 10,000 new jobs a month in 2025, the weakest hiring outside a recession since 2002. This year's average of 92,000 monthly jobs represents a modest recovery from last year's dismal performance, but it hasn't translated into opportunity for those on the margins.
A Pipeline That's Shrinking
Researchers at the Federal Reserve Bank of San Francisco found that landing a job has gotten tougher in the past couple of years. Ingrid Chen, Marianna Kudlyak and Riva Mikhlin wrote that "instead of being pulled in, the pipeline into employment is shrinking such that the recovery is no longer reaching workers at the margins." They weren't sure what's making the job search so tough, but suspected the immigration crackdown, hiring slowdowns at tech companies and government contractors, policy uncertainty, or "early signals of broader labor market deterioration."
The June jobs report showed 720,000 people dropped out of the labor force, and 700,000 of them — 97% — were ages 25 to 34. A smaller labor force means fewer people competing for work and tends to push the unemployment rate lower, but if June's drop was a statistical quirk and the labor force rebounds in July, the unemployment rate could tick back up.
One week in July, the number of Americans filing for unemployment benefits dropped to the lowest level in more than 50 years, and layoffs remain low by historical standards. But that doesn't help workers who can't find jobs in the first place. The market's sending mixed and confusing signals. Companies in some industries can't find enough workers and have to pay premium wages to fill vacancies. Others are using technology so efficiently that they don't need to hire much at all.
Winners and Losers in a Divided Market
Sal Guatieri, senior economist at BMO Capital Markets, said "there are just fewer people available to hire." Labor shortages translate into higher wages for some workers. The payroll processor ADP reported Wednesday that people who changed jobs last month pocketed a 7% raise, the biggest year-over-year gain in almost a year and a premium over a 4.4% increase for workers who stayed put.
But Guatieri also noted that "we are seeing companies produce more with their current staff," adding, "So there's less need to take on new workers." He said shortages of available workers and rising productivity "will keep the lid on the rate of hiring and monthly job growth." That's good news for corporate bottom lines. It's not so good if you're looking for work.
President Donald Trump's immigration crackdown and the ongoing retirement of baby boomers mean the United States doesn't need as many jobs as it used to keep unemployment from rising. A Federal Reserve study found the break-even rate of monthly hiring, which was 155,000 in 2023-2024, had dropped — perhaps to nearly zero.
Clouds on the Horizon
The outlook for hiring is clouded by ongoing fighting in the Persian Gulf, which has pushed up energy prices and squeezed family budgets, and by the rise of artificial intelligence, which could either make workers more efficient and better-paid or take their jobs. President Trump told reporters he believed the war with Iran would be over soon and said the armed forces were experiencing issues with supplies of some weapons.
Gold prices rose Friday and were headed for their biggest weekly gain since January as investors waited for the jobs data and weighed signs that lower energy prices could ease inflation concerns. Spot gold was up 0.4% at $4,254.11 per ounce after hitting a seven-week high in the previous session, with prices up more than 5% for the week. Crude oil prices were headed for a weekly loss, and lower energy prices help ease inflation concerns and reduce expectations of higher-for-longer interest rates.
Traders currently saw a 55% chance of a U.S. rate hike in September, down from 63% a week ago, according to the CME FedWatch Tool. Federal Reserve Bank of St. Louis President Alberto Musalem favored a boost in short-term borrowing costs, saying that "earlier gradual incremental interest rate increases are preferable, less disruptive, less costly than potentially later, more abrupt interest rate changes."
Matt Simpson, a senior analyst at StoneX, said hopes of peace in the Middle East had seen inflation expectations drop, allowing gold to surge higher. He said, "Regardless of how NFP plays out, $4,000 has proven to be a solid support level - and I suspect bulls are waiting for dips to take advantage of a much-needed correction higher towards $4,600. NFP may provide some noise over the near term, but price action has spoken, and gold looks like it wants to rally."
Why This Matters:
The growing gap between headline unemployment figures and the lived experience of job seekers reveals structural problems in the labor market that policy can't ignore. When nearly 28% of unemployed workers have been searching for six months or more, and when Federal Reserve researchers find the pipeline into employment is shrinking for workers at the margins, it's clear the recovery isn't reaching everyone. The immigration crackdown and technology-driven productivity gains may be reducing the number of jobs needed to maintain low unemployment, but they're also creating a two-tier system where some workers command premium wages while others face months of fruitless searching. The fact that 700,000 workers ages 25 to 34 dropped out of the labor force in June alone suggests younger Americans are giving up on finding work. That has long-term consequences for workforce development, household formation, and economic mobility. The combination of geopolitical instability, AI disruption, and policy uncertainty makes the outlook even murkier for those trying to gain a foothold in the economy.