U.S. Average Weekly Hours Fall Below Expectations, Shifting Sectoral Risks and Opportunities

The U.S. labor market has entered a precarious phase. In November 2025, the average workweek for private nonfarm payrolls edged up to 34.3 hours, narrowly exceeding expectations of 34.2 hours but failing to mask a broader trend of stagnation. This marginal gain, coupled with a four-year high unemployment rate of 4.6%, signals a labor market that is no longer a reliable engine for consumer demand. For investors, the implications are clear: the days of broad-based economic tailwinds are fading, and portfolio allocations must now prioritize resilience over growth.

The Labor Market's Fragile State

The November jobs report revealed a labor market in retreat. While 64,000 jobs were added, this figure followed a disastrous October that saw 105,000 jobs lost—a number distorted by a government shutdown but still indicative of underlying weakness. The unemployment rate, now at 4.6%, reflects a labor force that is no longer expanding at a pace that matches job creation. Worse, wage growth has slowed to 3.5% year-over-year, the weakest since 2021, and real income gains are evaporating as inflation persists.

The data also highlights a stark divide between sectors. Manufacturing and healthcare have shown resilience, but retail, hospitality, and construction—industries reliant on discretionary spending—are struggling. For example, retail sales in October 2025 were flat, the weakest in five months, while the unemployment rate for 16- to 24-year-olds hit 10.6%, the highest since 2021. These trends suggest that consumer demand is shifting from aspirational purchases to essentials—a shift that will reshape sectoral performance in 2026.

Rebalancing for a Weaker Labor Market

In this environment, investors should consider rebalancing portfolios toward defensive sectors and away from discretionary ones. The key lies in understanding how labor-driven demand is collapsing in certain areas while holding up in others.

1. Defensive Consumer Finance: A Growing Safe Haven
Consumer finance—encompassing credit cards, insurance, and financial services—has historically thrived during periods of economic uncertainty. As households face tighter budgets and rising debt burdens, demand for financial tools to manage cash flow will grow. For instance, credit card delinquency rates have already begun to rise, signaling increased reliance on revolving credit. Companies like Discover Financial Services (DFS) and Capital One Financial (COF) are well-positioned to benefit from this trend.

2. Discretionary Sectors: A High-Risk Bet
Discretionary sectors, particularly those tied to luxury goods and travel, are increasingly vulnerable. The average workweek for nonsupervisory employees remains at 33.7 hours, a lagging indicator of weak labor participation. With younger workers facing higher unemployment and wage stagnation, spending on nonessentials will likely contract. Retailers like Target (TGT) and Walmart (WMT) may hold up better than luxury brands, but even staples like home improvement stores are seeing softer demand.

3. Sectoral Diversification: The New Normal
The labor market's fragmentation demands a more nuanced approach to sectoral exposure. While healthcare and education services have added jobs, these gains are concentrated in a narrow subset of industries. Investors should avoid overexposure to sectors like hospitality and leisure, where average weekly hours in leisure and hospitality remain at 25.5 hours—a far cry from pre-pandemic levels.

Strategic Recommendations

• Shift to Defensive Financials: Allocate 15-20% of equity portfolios to consumer finance ETFs like XLF or individual stocks with strong balance sheets.
• Underweight Discretionary Exposure: Reduce holdings in luxury goods and travel stocks, which are likely to underperform as consumer spending prioritizes essentials.
• Monitor Labor Market Indicators: Keep a close eye on the employment-population ratio and wage growth data. A further rise in unemployment could accelerate the shift toward defensive sectors.

The U.S. labor market is no longer a reliable driver of broad-based economic growth. As average weekly hours stagnate and wage gains falter, investors must adapt to a new reality where sectoral differentiation is key. By rebalancing toward defensive consumer finance and away from discretionary sectors, portfolios can better withstand the headwinds of a weakening labor-driven demand environment. The question is no longer whether the labor market is cooling—it's how quickly investors can adjust to the new normal.