Small Business Hiring Trends: Labor Shortages Ease, but Industry Disparities Offer Strategic Opportunities

The U.S. labor market in 2025 remains a study in contrasts. While construction and manufacturing sectors show early signs of stabilizing hiring trends and easing labor constraints, retail and services continue to grapple with entrenched challenges. For investors, this divergence creates a compelling case for rebalancing portfolios toward industries where policy tailwinds, technological adaptation, and demographic shifts are aligning to unlock growth.

Construction and Manufacturing: A Glimmer of Optimism Amid Persistent Gaps

The construction sector, long plagued by a 94% shortage of craft labor and 92% difficulty in filling salaried roles in Q1 2025 [1], is showing tentative signs of stabilization. Hiring has slowed to its lowest rate ever recorded [1], but strategic investments in prefabrication, automation, and workforce development are mitigating bottlenecks. The One Big Beautiful Bill Act (OBBB), which offers 100% bonus depreciation for nonresidential projects, is expected to spur demand in healthcare and data center construction, sectors where spending remains near record highs [3].

Manufacturing, too, is navigating a fragile recovery. Despite a 15.8% year-over-year decline in hiring [5], the sector is leveraging upskilling programs and hybrid workforce models to retain talent. The aging workforce—projected to lose 1.75 million Baby Boomers to retirement in the next five years [4]—has forced firms to prioritize domestic training and automation. For example, 78% of manufacturers now allocate over 20% of their budgets to smart manufacturing initiatives, including robotics and AI-driven logistics [4].

These shifts are not without risks. Material costs remain 3–6% higher than pre-pandemic levels due to tariffs and supply chain disruptions [3], and immigration policy changes threaten to exacerbate labor shortages in construction [2]. Yet, the Federal Reserve’s anticipated rate cuts in late 2025 could ease financing for infrastructure projects, further bolstering confidence [3].

Retail and Services: A Lingering Stagnation

In contrast, the retail and services sectors remain mired in a labor market characterized by high turnover and stagnant hiring. The Bureau of Labor Statistics reports 7.2 million job openings in July 2025, with separations and hires both at 5.3 million [1]. Retailers are increasingly adopting automation and AI to streamline operations, but these measures cannot fully offset the challenges of attracting workers. For instance, 56% of retail leaders note a more competitive hiring landscape in 2025, with time-to-hire increasing for 53% of firms [4].

The sector’s struggles are compounded by a lack of policy support. Unlike construction and manufacturing, which benefit from government stimulus like the Bipartisan Infrastructure Law and the CHIPS Act [1], retail and services have seen reduced capital allocation. Projections indicate a 11.2% decline in retail construction spending in 2025 [1], reflecting a broader reallocation of resources toward sectors with clearer growth trajectories.

Strategic Investment Positioning: Where to Allocate and Where to Rebalance

For investors, the data underscores a clear imperative: prioritize sectors where structural challenges are being met with innovation and policy support. Construction and manufacturing, despite their labor and cost pressures, offer near-term opportunities in infrastructure, advanced manufacturing, and energy transition projects. The Deloitte 2025 Engineering and Construction Industry Outlook highlights that 76% of large M&A deals in industrial manufacturing focus on automation and energy transition [6], signaling strong capital flows into these areas.

Conversely, retail and services require a more cautious approach. While automation may provide temporary relief, the sector’s reliance on low-skilled labor and its limited access to government incentives suggest a prolonged period of stagnation. Investors should consider rebalancing toward construction and manufacturing subsectors that align with long-term trends, such as data center development and smart manufacturing.

Conclusion

The labor market’s uneven recovery in 2025 is not merely a statistical anomaly—it is a strategic inflection point. Construction and manufacturing, though still constrained by labor and cost pressures, are demonstrating resilience through innovation and policy alignment. Retail and services, meanwhile, face a more uncertain path. For investors, the lesson is clear: align capital with industries where structural challenges are being transformed into opportunities.

Source:
[1] Construction Industry Q1 2025: Navigating Challenges While Building Momentum, [https://cumming-group.com/construction-industry-q1-2025-navigating-challenges-while-building-momentum/]
[2] Summer 2025 Construction Market Trends, [https://interactive.usa.skanska.com/skanska/2025-summer-construction-market-trends]
[3] Q2 2025 Market Conditions Report, [https://www.dpr.com/view/q2-2025-market-conditions-report]
[4] Q3 2025 Market Conditions Report, [https://www.dpr.com/view/q3-2025-market-conditions-report]
[5] LinkedIn Workforce Report | United States | May 2025, [https://economicgraph.linkedin.com/resources/linkedin-workforce-report-may-2025]
[6] Industrial manufacturing: US Deals 2025 midyear outlook, [https://www.pwc.com/us/en/industries/industrial-products/library/industrial-manufacturing-deals-outlook.html]