The weakest labor market since 2020: What it means for investors

The recent US employment report has rekindled concerns about the health of the American economy. After months of mixed signals, data from July and August revealed a clear slowdown in job creation, accompanied by rising unemployment and a wave of layoffs. All of this brings to mind scenarios not seen since the height of the pandemic in 2020.

A clear slowdown

The month of July had already left a bitter taste in analysts' mouths, with only 73,000 new jobs added , well below estimates (110,000). The picture was worsened by the revisions made to previous months, which removed over 250,000 positions from the overall count.

But August was even worse: just 22,000 new jobs versus a forecast of 80,000, marking the worst result since 2020. Furthermore, the revised data for June actually showed a net loss of jobs: a loud and clear alarm bell.

At the same time, the unemployment rate rose to 4.3% , confirming that this is not just a statistical effect, but a real weakening of the labor market.

Layoffs on the rise and consumer confidence on the decline

In addition to the slowdown in hiring, August saw a 39% increase in announced layoffs , with 86,000 people involved—the highest level for that month since 2020. Businesses are holding back on new hiring due to weak sales and uncertainty surrounding trade tariffs, according to the Federal Reserve's Beige Book.

These factors have already had repercussions on financial markets. Treasury yields have fallen, and investors now almost certainly expect the Fed to cut interest rates as early as September. Not surprisingly, consumer confidence is also declining: the University of Michigan Consumer Confidence Index (a widely followed indicator that measures US consumer confidence by interviewing a representative sample of American households, gathering information on their current economic conditions and future expectations , such as income, employment, inflation, and spending power) fell from 61.7 to 58.2 between July and August, while household debt defaults are rising.

Recession coming?

The American economy therefore appears to be at a crossroads: on the one hand, employment and consumer confidence data point to a period of weakness, while on the other, there are still potential elements of support.

Positive factors include continued solid wage growth, new business investment, and the recent "One Big Beautiful" Bill, which includes tax incentives and deregulation. Added to this is the anticipated boost from artificial intelligence, which could increase productivity and corporate profits, while having complex effects on employment.

Strategies for investors

In this uncertain environment, investors are adopting more balanced portfolio strategies. On the one hand, they maintain exposure to growth-related stocks (e.g., asset managers, industrials, and energy), while on the other, they are strengthening defensive positions in sectors such as:

  • Utilities and Infrastructure (XLU, Brookfield Infrastructure)
  • Energy Midstream (Enterprise Products Partners)
  • Defensive REITs (such as Realty Income)
  • Precious metals (gold and silver, via ETFs such as GLD and SLV)

Caution is advised, however, on the BDC (Business Development Companies) front, where the economic weakening and possible rate cuts could weigh on profitability.

Conclusion

The weakest labor market since 2020 tells us that the U.S. economy is not experiencing solid, uninterrupted growth, but rather a delicate balance between recession risks and hopes for recovery.