What Goes Up, Must Come Down: How the Labor Market Is Emerging From the Long Shadow of the Pandemic

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Key points: The US labor market has been cooling for over three years, with unemployment drifting upward for 35 months, the longest such stretch without a recession on record. Rather than a sign of structural breakdown, this prolonged cooling can be better understood as the cyclical unwinding of an equally unprecedented pandemic-era labor boom. The recent surge in productivity growth is largely consistent with the final stage of this unwind — firms getting more from existing workers rather than adding new ones — though early AI adoption may also be contributing. With the Indeed Job Postings Index back near pre-pandemic levels, the labor market appears to be normalizing, not collapsing. But several dynamics bear close watching with potential trouble on the horizon.