Data show labor market strength despite slower hiring

The Vanguard data can be particularly insightful given the challenges facing government labor data collection since the COVID-19 pandemic. One major challenge, according to Adam Schickling, a Vanguard senior economist who studies the labor market, is the frequent and substantial revisions to government data. This issue has lately been exacerbated by the U.S. government shutdown, which disrupts the collection of key data that the Fed rely on in setting monetary policy.

After a rapid rise in employment growth during the post-pandemic period, hiring activity has cooled significantly, according to data from Vanguard-administered 401(k) plans. The rate of job growth has slowed from a peak of 0.36% in August 2022 to 0.09% in September 2025. Our job growth measure has been below 0.10% in seven of first nine months of 2025; the last time it remained below 0.10% for an extended period was in 2009, during the recession that followed the global financial crisis.

“Recent large revisions to nonfarm payroll releases, driven by low survey response rates and methodological limitations, have raised concerns about the reliability of headline employment figures,” said Nicky Zhang, a Vanguard investment strategy analyst.¹ “In contrast, Vanguard’s net hires rate is derived from administrative data, which are not subject to such revisions and offer a stable and timely view of labor market dynamics.”

The slowdown in employment growth has been consistent across age groups, but is particularly notable among younger workers. For workers ages 21–25, the rate of job growth is currently 2.1%, down from a 2022 peak of 5.7%. The rates of job growth for the 26–40 and 41–55 age groups have also fallen by over half from their post-pandemic highs.

“Younger workers have historically accounted for a large share of employment growth, so they are particularly exposed to the pullback in firms’ hiring activity,” Schickling said. “But since hire rates for older workers have followed a similar trajectory, we hesitate to ascribe younger workers’ recent struggles to longer-term structural forces, like AI-enabled automation of entry-level jobs.”

With new job growth at historically low levels, firms may soon use other levers to adjust their labor utilization. Businesses with hourly workers have an extra degree of flexibility: They can scale hours up or down without hiring or laying off employees. Since hourly workers represent about 55% of the U.S. workforce—and a similar share of Vanguard’s 401(k) population—hours adjustments can greatly affect both production and household income.²

“The hours margin has historically been a key part of firms’ adjustment to short-run market conditions,” said Fiona Greig, Vanguard global head of investor research and policy. “This in turn exposes hourly workers’ incomes to the fluctuations of the business cycle. In the months ahead, we’ll be looking to hourly workers’ paychecks as a leading indicator of labor market conditions, household finances, and consumer spending.”              

As of September 2025, income growth for hourly workers (+4.3%) and salaried workers (+3.6%) still exceeded inflation.³ With the hire rate dropping and hourly income growth remaining above 4%, firms for now seem to be managing costs through headcount rather than hours and wages. 

Hourly and salaried workers both experienced a significant increase in income growth during the pandemic period, followed by a gradual decline back toward the 3%–4% range. But hourly workers show more volatility and have consistently been the first to move with the business cycle—declining at the onset of the global financial crisis in late 2008, falling sharply with COVID uncertainty in early 2020, rising sharply in early 2021, and peaking in early 2022.

Vanguard’s income growth series, computed from data on employee contributions to Vanguard 401(k) plans, shows that hourly workers’ income can serve as a gauge of consumer resilience and underlying economic conditions. We analyze median year-over-year income growth for employees who have been with their firm for at least one year. “Because we track total income rather than average hourly earnings, our series reflects both short-run changes in hours and the longer-run evolution of wage rates and base salaries,” said Vanguard investment strategy analyst Aaron Goodman.

Although hiring momentum has slowed, Vanguard data illustrate persistent labor market resilience—wage growth remains solid and employment levels are stable. Going forward, the income trajectory of hourly workers will be a key indicator for assessing shifts in economic conditions and consumer behavior.