Cracks in the strong labor market are starting to show

The big picture: The unemployment rate is still very low at 3.7% — and hiring appears to be chugging along at robust levels, at least according to the top-line numbers released Friday by the Labor Department.

• Though we've seen headlines about layoffs at places like Hasbro, EY and Spotify, the data shows job cuts are historically low.
• But demand for workers — particularly in the professional classes — has cooled. Job openings have come down. And hiring rates have slowed considerably since peaking in October 2021.
• "It's definitely more difficult to find a job than it was last year," said Matthew Luzzetti, chief U..S economist at Deutsche Bank.

Here are some signs of cracks in the strong labor market:

• The hiring rate in the private sector is now below where it was in 2019.
• The job gains in the economy over the past several months have been confined to just a few industries.
• If you strip out health care, education, leisure and hospitality, there's been job loss in the private sector. Over the last six months, outside of those three categories, the private sector registered a decline of 7,000 in payroll employment, per an analysis from Deutsche Bank.
• Hiring has been basically negative in the professional and business services category for the past few months. There were 9,000 jobs subtracted from that category in November, according to the BLS.
• Unemployment rates in certain professional sectors are still very low, but they've ticked up for some. In finance, it went from 1.6% last year to 2.1% in November.
• Meanwhile, there's also been a big drop-off in temporary job hiring. Typically, before a company resorts to layoffs, it'll cull temporary staff — that's often a leading indicator of a slowdown in the job market.

Zoom out: This could all be fine, a bunch of little cracks that don't bring the house down.

• In fact, this is pretty much what the Fed has been trying to do with rate hikes — cool off a smoking hot labor market. It's a sign of the job market coming into better balance, as Axios Macro wrote last week.
• But things could go sideways. Luzzetti says these are all signs that the job market should continue to weaken and he's predicting a recession for early next year.
• What happens next isn't obvious, he said. "It's a highly critical and fragile moment."
• "[N]ot a soft landing; it's the plane hovering in the air," said Lightcast senior economist Ron Hetrick in a recent note.