The Big Idea
A marginal firming in demand for workers
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Within the Fed, it has become a mantra that “the labor market is stabilizing.” The hard data suggest that the employment situation may actually be improving somewhat. My favorite proxy for the hiring side of the labor market equation, the Indeed Job Postings Index, is consistent with a marginal firming in the demand for workers in early 2026 and offers corroboration for the small swings in recent months portrayed in anecdotal data.
Mapping out the story from business sources
There is a rich array of qualitative information on the economy that can establish a narrative for the broad performance of activity and the labor market. There is ample anecdotal evidence from business comments, including the assessments relayed by Federal Reserve Bank presidents from their regular conversations with their networks of business contacts. We also have numerous business surveys, highlighted by the monthly ISM polls.
In very broad terms, this stream of information can be used to flesh out a running narrative for the labor market. Many firms took a step back last year, delaying major decisions on both hiring and layoffs. The primary impetus for this cautiousness was said to be policy-related uncertainty, deriving most notably from the administration’s unpredictable moves on the tariff front, which led many companies to delay decisions related to both investment and hiring.
Commentators have been discussing the reduction in churn in the labor market over the past year. Many call the current situation the “no hire, no fire” labor environment. This description is accurate, as both gross hiring and layoffs were historically weak for much of 2025 and into this year. This is a highly unusual alignment. The only explanation that in my mind offers a satisfactory rationale for this unusual situation is the fact that business cautiousness ratcheted up, so that executives were hesitant to make big moves on headcount, whether positive or negative.
By late last year, at least some of the firms that had moved to the sidelines were beginning to tiptoe back into the water, as the endgame on tariffs started to become a little clearer. Heading into early 2026, the tone of business sentiment picked up significantly, and labor market data similarly improved.
Then, unfortunately, at the beginning of March, the US-Iran conflict began, and the uncertainty associated with the fluid situation in the Middle East sent many businesses scurrying back to the sidelines again.
Hard data
The hard statistical data arguably paints a brighter picture than the Fed consensus of mere stabilization. Most notably, private sector payroll increases averaged 25,000 last year but accelerated to an 86,000 per month pace in the first four months of this year. Similarly, initial unemployment claims averaged 225,000 a week last year but slipped to a 211,000 weekly pace so far in 2026. Finally, the unemployment rate peaked at 4.5% in November and inched down to 4.3% in January, March, and April. So, I would argue that the Fed characterization might be a little conservative. It may be more precisely accurate to say that the labor market has firmed slightly early this year. Having said that, I do not rule out the prospect that the ongoing uncertainty in the Middle East, especially if it lingers or, worse yet, ratchets up further, could reverse some of those modest gains.
Indeed Job Postings Index
As I have discussed numerous times, the Indeed Job Postings Index is my favorite proxy for the hiring side of the labor market equation (I favor initial jobless claims on the layoff side of the ledger). Job search firm Indeed aggregates the postings on its site, creating an aggregate index of labor demand. The concept is quite similar to the JOLTS job openings series, but it does not feature the outsized high-frequency volatility that makes the JOLTS figures unreliable.
In any case, the Indeed index was set at 100 on February 1, 2020, providing a pre-Covid benchmark against which to compare as the economy reopened in 2021 and beyond. In broad strokes, the gauge peaked in early 2022, at the height of the post-pandemic labor shortage and gradually moderated for almost four years, finally leveling out late last year at roughly the pre-Covid level of labor demand (Exhibit 1).
Exhibit 1: Indeed Job Postings Index
Source: Indeed.
From this perspective, the Fed’s “stabilization” description looks about right. And I would not characterize the “stabilization” story as grossly wrong. However, if we zero in and take a closer look, there may be more nuance to the story.
Focusing on the last year or so, we can see the limited swings in the gauge more clearly (Exhibit 2). Labor demand eroded significantly in September and October but bottomed out around the beginning of November and managed a solid rebound from November through February. This likely corresponds to the tentative re-engagement by businesses described above, as tariff-related uncertainty began to recede. Then, the beginning of the conflict in Iran probably led to a noticeable pullback in the demand for workers in March. Since the beginning of April, the Indeed index has been on balance little changed, with small moves in both directions over the last two months.
Exhibit 2: Indeed Job Postings Index
Source: Indeed.
In my view, this more detailed account of labor market developments is far more complete and accurate than the “labor market is stabilizing” characterization that comes from a 30,000 foot view.
Conclusion
For me, the most interesting aspect of the current labor market situation is that the erosion in demand seen in the Indeed index since the beginning of the Middle East conflict, corroborated by anecdotal commentary, has not yet shown up in the aggregate data. Payrolls posted surprisingly robust gains in both March and April, and initial jobless claims have averaged 208,000 a week in April and May, down slightly from the 212,000 average in the first quarter. My early May payroll forecast calls for a 100,000 gain in private payrolls, so I am not fully taking the notion of a marginal slackening in labor market conditions on board, though I would certainly not be shocked or worried if we saw a softer May reading. The encouraging news here is that the Middle East conflict is viewed as likely to be short-lived, and if uncertainty ebbs in a meaningful way in the months ahead, I suspect that there is a substantial reservoir of pent-up demand for workers that may be unleashed, perhaps later this year.
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