As leaders engage in 2025 planning, the October U.S. jobs and inflation reports suggest continued stabilization and resilience of labor markets despite high levels of geopolitical and economic uncertainty. Effective leaders incorporate these market factors into their plans as they continue to work toward normalcy in a complex business environment.

Job gains – Total nonfarm payroll employment in the U.S. increased by 254,000 in September, higher than the average monthly gain of 203,000 over the prior 12 months, and outpacing job gains in recent months.

Job openings, layoffs, and hire rates – The number of job openings in the U.S. changed little at 8.0 million in August (down from 9.3 million a year ago and from a high of 12.0 million in March 2022). The number and rate of hires were little changed at 5.3 million and 3.3%. The layoff rate of 1.0% was slightly below the previous month and a year ago.

Unemployment rate – The U.S. unemployment rate fell in September to 4.1% from 4.2%. This figure is higher than a year ago (3.8%) and far lower than the 7.8% rate in September 2020 during the pandemic.

Labor participation rate – The overall U.S. labor force participation rate was 62.7% in September for the third month in a row and consistent with a year ago. U.S. labor participation rates have been dropping for decades. The pandemic created a disruptive gap that has closed gradually to align with the longer-term trend. The current labor participation rate is approximately 0.6 points lower than February 2020, versus a much larger gap of 3.2 points in April 2020. The labor force participation rate for people ages 25 to 54 (a core active workforce segment) has returned to its pre-pandemic level. While talent shortages continue to exist in many areas, labor market conditions are more favorable to companies than they were at this time last year.

Quit Rates – The August U.S. quit rate fell to 1.9%, well below the pre-pandemic figure of 2.3% (it increased to 3.0% during the height of The Great Resignation). The quit rate fell to 2.3% for four consecutive months starting in July 2023, then further falling to 2.2% in November and gradually below 2.0% for the first time in August 2024. The current level and stability of quit rates indicate that labor markets overall are less volatile now, and employees are choosing to remain with employers at more consistent rates.

Inflation – The U.S. Consumer Price Index (CPI) increased 2.4% during the 12 months prior to September. This represents a continued downward trend and is considerably lower than the 12-month rate of 6.4% ending in December 2022. This also was the smallest 12-month increase since February 2021. The September rate remains higher than pre-pandemic levels, which were close to 2.0% on average, but are approaching that level. While inflation remains higher than most government targets, rates reflect greater stability in markets, and in the buying power of employees.

Wage and salary increases – Average hourly earnings in the U.S. have increased by 4.0% for the 12-month period ending in September. According to a WTW survey, the overall median pay raise in the U.S. for 2024 was 4.1%, compared with 4.5% in 2023. Overall salary budget increases are expected to rise by 3.9% in 2025, which, despite declining since 2023, remain higher than averages over the past 20 years. 2023 was the first year since 2020 where U.S. pay increases were higher than inflation. Pay increases in the U.S. had been higher than inflation every year from 2008 through 2020 – a return to that pattern indicates greater stability in labor markets, and less of a need to raise employee pay, which also drives inflation.

In planning for 2025, effective leaders practice focused human capital governance at the board and senior management levels. They understand that talent shortages are here to stay despite the easing of talent pressures, and they predict that inflation will likely continue to decline in 2025 but could fluctuate. They closely monitor salary surveys for indications of salary increases in the markets where they operate.

Effective leaders have long moved beyond the phenomena of The Great Resignation and Quiet Quitting to address deeper workforce challenges. Today, these leaders embrace talent strategies to create workplaces where people want to be regardless of circumstance. They differentiate culture and employee experiences while maintaining competitive pay and bonus levels. They know that providing workers with flexible work, pay, benefits and skill development programs is key in the current environment. They update total rewards programs to meet the needs of 2025’s workers and new ways of working. Effective leaders foster culture and purpose so their companies and their people thrive in an ever-challenging business environment.