The job market sends mixed signals to economists, forcing policymakers to walk very carefully. What began as such a robust start to a recovery has become so much more – a job market where there’s been almost no hiring, but very few layoffs. The employment data for December provides a telling clue to this confusing situation, but poses far more questions than answers about which way this economy will turn.
Employment growth in the last month of the year has some positive indications
But the truth is that the private sector actually increased employment by 41,000 in December; this is an improvement from the correction made last month on the 29,000 decline in employment figure to an employment decline of 41,000 jobs. Of course, this is opposite to the forecast by Wall Street analysts of an employment gain of 48,000; for the second month consecutively, employment actually increased as opposed to decreasing.
The main sectors that added employment are healthcare providers, eating places, and hotels. The report from ADP has suddenly gained so much prominence in recent days because of delays in data related to employment due to the shutdown of the federal government in the US. According to Nela Richardson, its chief economist, while new jobs are still being added and it’s not seeing an increase in layoffs, it “seems to be finding its footing” in the labor market.
Lack of wage growth indicates labor-market vulnerability
Employees who held existing jobs witnessed their earnings increase only 4.4 percent over the last year, through December, which is the smallest annual wage gain since the onset of the pandemic and a sharp decline from the 7.8 percent gains seen a few years earlier, reflecting how much the power shift has occurred between bosses and workers. The lack of employment growth has become most apparent in workers’ reduced power to extract wage increases, whose demands bosses do not have to contend with much anymore.
The pace at which employment growth occurred in the US economy from May to November last year was merely an average of 17,000 jobs, while for the year before April 2025, it was an average of 147,000 jobs a month. Such is indeed the speed at which the labor situation may deteriorate, especially if the rest of the economy appears stable. Federal Reserve Chairman Jerome Powell estimates that the economy might be losing an average of 20,000 jobs every month since April.
The key factors responsible for the slowdown in employment include:
- A significant source of uncertainty for the economy is the effect of tariffs, which is leading to a postponement of hiring and
- Adoption of artificial intelligence leads to automation of processes done by human employees.
- Fewer immigrants result in a limited labor supply due to fewer workers being available to enter the labor market
- The weakness in the construction and housing sector is causing spillovers in other connected industries
The Federal Reserve is closely following employment trends
In response to worries about the labor market, the Federal Reserve has now lowered its interest rates at its last two and now three meetings, showing the level of concern the Fed has for the labor market and the state of the labor market being its top concern. What will happen over the weekend is the official release of the labor report by the Bureau of Labor Statistics, with estimates pegging the creation of 73,000 jobs with the lowering of the unemployment level to 4.5 percent.
The jobs puzzle that America currently faces mirrors the other uncertainties that the economy is experiencing and goes beyond the realm of supply and demand. The reality is that companies are not experiencing massive layoffs, and at the same time, there isn’t enough growth when it comes to the addition of new jobs to reflect what is normally experienced during the recovery of the economy.
