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Proprietary Vanguard data suggest the U.S. labor market remains stable but is still soft compared with last year. The official Bureau of Labor Statistics (BLS) September employment report, delayed due to the government shutdown, showed the U.S. added a higher-than-expected 119,000 jobs in September but the unemployment rate increased slightly to 4.4% as more workers entered the labor force. Vanguard data has the capability to measure job growth across the income distribution, which helps explain this paradox of resilient job growth with slightly higher unemployment.

Hiring holds steady for lower-wage earners

Vanguard’s October data show the net hires rate near 0.1%, equivalent to roughly 85,000 private-sector jobs added nationally.

“Weaker immigration and elevated retirements have slowed labor supply growth,” said Adam Schickling, a senior U.S. economist at Vanguard. “As a result, we expect that only 60,000 additional jobs are needed in a typical month to keep the unemployment rate steady, a relatively low hurdle.”

Hiring data from Vanguard show labor market trends stabilizing

_{Notes: The two vertical bars indicate economic recessions, as identified by the National Bureau of Economic Research. The Vanguard employment growth rate represents monthly net hiring activity calculated as hires minus separations, divided by the total employment level from the previous month. The U.S. employment growth rate is the three-month moving average of the month-over-month change in nonfarm payroll employment. Both series are seasonally adjusted using the X-13ARIMA-SEATS method. The three-month average helps smooth short-term fluctuations. We excluded the effects of temporary, pandemic-related layoffs in 2020 and used the final revised nonfarm payroll employment data for the U.S. employment growth series.}

_{Sources: U.S. Bureau of Labor Statistics, as of August 30, 2025, and Vanguard, as of October 31, 2025.}

 

After a soft patch earlier this year, job growth for lower-wage workers (those earning less than $55,000 annually) has rebounded, supported by stronger hiring and stable layoff rates. Growth for this group was 0.47% in August, up from 0.23% in February.

“Lower-wage workers have seen hiring improve alongside low and stable layoff rates,” said Nicky Zhang, a Vanguard investment strategy analyst. “While separations remain low for middle- and higher-income workers, hiring has softened for these groups, resulting in slower job growth.”

Employment growth has slowed for middle- and higher-income workers 

_{Notes: The two vertical bars indicate economic recessions, as identified by the National Bureau of Economic Research. The Vanguard employment growth rate series by income percentile refers to net hiring activities as a share of existing employees in each income group. The series is seasonally adjusted using the X-13ARIMA-SEATS method and transformed into a three-month moving average. Income is inferred from data on participants’ 401(k) plan savings-rate elections and realized contributions. Data are reported on a lag because of data coverage limitations for new hire plan participants.}

_{Source: Vanguard, as of August 2025.}

Layoffs remain within normal bounds

Recent layoff announcements, primarily in white-collar sectors, have sparked concerns about AI-driven job losses. However, Vanguard research shows layoff activity has normalized to pre-pandemic levels, suggesting no structural shift in labor demand.

“Monthly layoffs exceed 1 million even in tight labor markets,” Schickling said. “This is a normal and healthy function of a dynamic labor market.” Vanguard continues to monitor AI adoption and its potential impact on employment trends.

Income growth remains strongest among lower-income workers

Beyond hiring and layoffs, Vanguard’s 401(k) data offer another lens: income growth. Among workers earning less than $55,000 annually, year-over-year income gains averaged 4.7% in the second and third quarters of 2025.

Middle-income earners (those earning $55,000–$102,000 annually) saw growth of 3.9% over the same time frame, while high-income earners (those earning more than $102,000 annually) averaged 3.6%. Gains for those groups have trended slightly downward in recent months, aligning with slower high-income job growth.

“Income growth can signal labor market health if firms cut hours before layoffs,” said Aaron Goodman, a Vanguard investment strategy analyst. “So far, income gains remain stable, especially among the hourly workers in the bottom half of the income distribution.”

Lower-income workers continue to see stronger income gains

_{Notes: The Vanguard income growth series considers employees who made 401(k) contributions in all 12 months of the preceding calendar year. For each employee contribution, we infer the paycheck amount as the contribution amount divided by the contribution rate. For each employee and each month, we compute total income divided by the number of paychecks. We then compute the year-over-year percentage change in income per paycheck (current month relative to 12 months ago) for each employee and take the median across employees. Finally, we report a three-month moving average of the monthly median growth rate. We exclude monthly observations in which the employee earns less than $200 per paycheck or in which the smallest paycheck is less than 10% of the largest paycheck. Approximately 1.5 million 401(k) participants are in the sample in 2025. We sort employees into annual income groups based on their total income in the preceding calendar year. The cut points for the annual income groups are in real 2025 dollars and are inflation-adjusted for prior years. The two vertical bars indicate economic recessions, as identified by the National Bureau of Economic Research.}

_{Source: Vanguard, as of October 2025.}

Looking ahead

These trends, supported by BLS data, underscore the resilience of the labor market. Vanguard expects modest unemployment increases and stable wage growth through year-end, with improvement anticipated in 2026 as trade policy uncertainty eases, government employment stabilizes, and productivity-enhancing investments continue to take hold.

Contributors:

Fiona Greig, Ph.D., Vanguard Global Head of Investor Research and Policy
Adam Schickling, CFA, Vanguard U.S. Senior Economist
Kelly Hahn, Vanguard Head of Retirement Research
Aaron Goodman, Ph.D., Vanguard Investment Strategy Analyst
Nicky Zhang, Vanguard Investment Strategy Analyst

 

_Notes:

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