The relationship between employment and stock prices can be a confusing one. As today’s mixed trading shows, investors don’t always quite know how to react.
Our main takeaway: the short-term employment outlook is not disastrous, but it is definitely fragile.
Although clearly not great news for workers, this is on balance positive for investors. It means Fed policy is likely going to get easier, which represents a tailwind for the stock market.
The report should also draw our attention to what may be an even more important consideration for investors: the longer term outlook for labor markets.
AI-related productivity gains—meaning computers replacing people—may already be having some impact on hiring.
The soft jobs number dominated the headlines, but the Bureau of Labor Statistics (BLS) also reported a healthy rise in worker productivity yesterday. Productivity advanced 3.3%, versus 1.5% in the same quarter a year ago.
The AI productivity story is potentially just getting started. Real productivity growth averaged between just 1% and 2% over the past 10 years.
Peeling the onion
The August 2025 BLS report showed a meaningful slowdown in hiring. Approximately 22,000 jobs were added, whereas 75,000 were expected.
The unemployment rate rose to 4.3%, which is the highest since 2021. Prior months were revised down, including a June job loss.
It’s important not to overreact to these numbers.
We still saw net job creation. We are talking about an estimated miss of about 50,000 jobs in an economy that has a civilian labor force, according to the BLS, that amounts to 169 million jobs.
Today’s miss therefore represents only 0.03% of the total workforce.
For perspective, compare these figures to April 2020, after the economy was effectively shut down because of the pandemic. In April 2020, the BLS reported 20.5 million job losses, an all-time record, as unemployment spiked to 14.7%.
It’s equally important not to let political narratives distort our understanding of the data, both in terms of the scale of the labor market weakness and the causes.
The role of tariffs
The financial media, in our view, has a pronounced tendency to connect any and all problematic economic news to Trump policies, with tariffs being the main focus.
Corporate hiring works with a lag, so what may have happened several months ago has the potential to show up in current data.
And it is perfectly fair to say that the April market swoon, following Liberation Day, created uncertainty and complicated decision-making across the business landscape.
But a close look at the industry sectors where job growth disappointed does not really support the “blame tariffs” narrative.
Federal government employment, which declined by 15,000 in August, was the area with the most job losses. Yet this was intentional. The point of D.O.G.E. was to shrink the federal government—and obviously this has nothing to do with the strength of the private sector.
Extractive industries—mining, quarrying, and oil and gas—also saw some job losses, approximately 6,000. But this is largely related to declining energy prices, which, like reducing the scope of federal government, is an objective of the administration.
Manufacturing jobs declined by 12,000, but this included the effect of strike activity (largely Boeing workers) that led to 15,000 job losses in the transportation equipment sector.
Meanwhile, the BLS reported “little change” in employment across a wide range of industries that could have been impacted by tariffs and tariff policy uncertainty.
These industries include “construction, retail trade, transportation and warehousing, information, financial activities, professional and business services, leisure and hospitality, and other services.”
Keeping an eye on AI
Monetary policy is still “restrictive,” as the Fed describes it. This means interest rates are still at high levels that are intended to slow economic growth (in order to help bring down inflation).
To the extent that labor markets are facing cyclical growth headwinds, the Fed has ample room to ease and help stimulate the economy. Investors in the stock market should take comfort in this.
From a longer term perspective, all eyes should be on AI, which may already be influencing employment growth across sectors.
Amazon (AMZN) is the second largest private employer in the country. The company has 1.1 million employees in the United States.
AMZN has also been one of the main drivers of private sector job growth in the United States over the past decade. In 2015, AMZN had approximately 150,000 workers in the U.S. The company’s employee headcount has grown by 600%.
The CEO of AMZN, Andy Jassy, recently shared some thoughts on Generative AI and predicted that the company’s workforce will start to decline as AI is deployed throughout the organization.
