The August jobs report delivered a clear signal: the labor market is losing momentum. Nonfarm payroll growth fell short of expectations, while unemployment edged higher, raising concerns that the slowdown is gaining traction. For wealth advisors and RIAs, this data point is more than a headline—it’s a reminder of how fragile the economic underpinnings of client portfolios can be, and how labor market shifts ripple across asset allocation, planning strategies, and risk management.
Moody’s economist Mark Zandi has been vocal in his warnings about what he calls a “labor recession,” noting that revisions for June revealed a shrinking workforce for the first time since the pandemic era in 2020. For financial professionals, this development underscores the importance of parsing labor data with the same diligence given to inflation or interest rate policy, since sustained weakness here can foreshadow broader economic stress.
Friday’s report reinforced Zandi’s concerns. In conversations with Business Insider, he emphasized that he’s watching closely for signs of contagion—whether the labor downturn will remain isolated or begin to drag down the broader economy. For advisors, that distinction is critical. A slowdown in job growth alone has implications for consumer spending and sentiment, but an outright contraction can alter the calculus for equity exposure, fixed income positioning, and cash flow assumptions in client plans.
Zandi has his eye on September 9, when preliminary benchmark revisions to prior job data are due. Early expectations suggest the downward adjustment in job additions will be meaningful, signaling that labor market strength was overstated earlier in 2025. Advisors should view this as a potential inflection point: when the labor market picture is downgraded, market narratives often shift quickly, affecting valuations, volatility, and client perceptions of risk.
One striking element Zandi highlighted is that these revisions and reported job losses have occurred without a material pickup in layoffs. Instead, the softness is showing up in hiring freezes and slower additions. For RIAs, this distinction matters. A slowdown in job creation pressures consumer demand, but if businesses begin accelerating layoffs, the impact is deeper, undermining not just consumption but also confidence in credit markets, housing, and overall economic resilience.
Zandi was blunt: “If businesses start laying people off, then I think this will not just be a jobs recession, [it] will be an overall economic downturn.” For advisors, this statement reinforces the need to prepare client portfolios for scenarios where the economy tips into contraction, even if consensus forecasts still point to “soft landing” outcomes.
The economist used a vivid analogy to capture the fragility of the moment. He compared the economy to someone clinging to the edge of a cliff. “Everything is clinging tightly to the lip of the cliff,” he said, noting that while a few months ago the grip was strong, “we now have seven fingers” left. His warning: if a few more slip, the economy goes over the edge. For wealth managers, the metaphor serves as a stark reminder that when the labor market is this fragile, it doesn’t take much to tip conditions into something more severe.
From an investment perspective, Zandi’s analysis points to implications around interest rates and monetary policy. He acknowledged that the jobs data increases the likelihood of additional rate cuts. But, in his view, much of the benefit of lower borrowing costs has already been priced into the market. “A lot of the benefit of the lower rates is already in the [market] because investors anticipated the rate cuts,” he said.
For advisors, this is critical. If monetary easing has been front-loaded into market expectations, then portfolios positioned purely on the assumption of fresh rate-cut tailwinds could be vulnerable. Equities that have rallied on dovish Fed expectations may struggle to find new catalysts if labor market weakness accelerates. Meanwhile, fixed income markets, though benefiting from lower yields, must also contend with the potential for widening credit spreads if the downturn deepens.
Beyond market moves, the weakening jobs data also has planning implications. For high-net-worth clients still in their peak earning years, a softer labor market could translate into slower income growth, deferred bonus payouts, or heightened career uncertainty. For retirees, it may affect confidence in economic stability and spending patterns, particularly if portfolio drawdowns coincide with rising recession fears. Advisors may want to revisit cash flow stress tests, ensuring that both accumulation and decumulation plans can withstand scenarios where growth slows more materially.
Another layer of complexity comes from consumer sentiment. Historically, employment trends correlate closely with confidence readings, which in turn drive spending behaviors. If clients’ businesses or industries are tied to discretionary spending, advisors should factor in the potential for earnings disappointments in consumer-exposed equities. On the planning side, preparing clients psychologically for volatility is just as important as managing the portfolios themselves.
Zandi’s warnings also invite a broader reflection on diversification. Advisors may want to evaluate whether client portfolios are overly concentrated in sectors sensitive to labor conditions, such as consumer discretionary, housing, or small-cap equities reliant on domestic demand. Alternative asset classes, private credit, or defensive allocations may play a more prominent role in cushioning portfolios if the labor slowdown cascades into a full economic downturn.
Importantly, the weakening jobs data doesn’t exist in a vacuum—it interacts with other macro forces. Inflation pressures have been easing, but not uniformly. Productivity gains remain uneven across industries. Fiscal policy, while still supportive in some areas, is constrained by higher government debt. Advisors should connect these dots for clients, explaining how labor market fragility, monetary policy, and fiscal constraints intersect to shape investment risks and opportunities.
In practical terms, RIAs can take several steps now. First, reassess assumptions in financial plans that rely on strong labor income growth, especially for younger clients in volatile industries. Second, stress-test portfolios under scenarios where GDP growth slips into contraction. Third, communicate proactively with clients about labor market developments, framing them not as abstract statistics but as drivers of the economy, markets, and their personal financial goals.
The cliff metaphor is especially useful in client conversations. Many investors underestimate how quickly labor market shifts can turn into broader economic events. By illustrating the fragility with Zandi’s analogy, advisors can make the risk more tangible while positioning themselves as guides through uncertainty. At the same time, maintaining balance is key—clients need to understand the risks without becoming paralyzed by them.
For those managing institutional or retirement plan assets, the implications extend further. A softer labor market may alter contributions, affect sponsor confidence, and raise questions about liability assumptions. Advisors in this space should revisit actuarial inputs and ensure that plan design discussions incorporate updated labor market realities.
Looking ahead, the September 9 revisions could serve as the next catalyst for market reassessment. If the markdowns are sharp, investor psychology may shift abruptly, challenging the recent resilience in equities. Advisors who prepare now—by bolstering defensive strategies, rebalancing portfolios, and updating financial plan assumptions—will be better positioned to guide clients through potential volatility.
Ultimately, the August jobs report serves as a warning flag. The labor market is not collapsing, but it is clearly weakening. For RIAs and wealth advisors, this moment calls for vigilance. The connection between employment, consumer confidence, and economic growth is too direct to ignore. By staying ahead of the data, contextualizing it for clients, and proactively adjusting strategies, advisors can help clients avoid being caught off guard if “seven fingers on the cliff” slip to five, then to three.
In an environment where uncertainty looms large, the role of the advisor becomes even more central. Clients need clarity, perspective, and reassurance. The labor market may be fraying, but with disciplined planning and proactive communication, advisors can help clients hold their grip—and avoid going over the edge.
