Everyone is gloomy about America’s jobs market. Investors talk of a “K-shaped” economy, in which growth is buoyed by an exuberant stockmarket and artificial-intelligence investment, while ordinary Americans languish. Job creation and overall economic growth, which usually move in tandem, have diverged. The Federal Reserve has cut interest rates at its two most recent meetings. Jerome Powell, the central bank’s chair, calls the loosening “risk management”, or insurance against a deeper downturn. Christopher Waller, a contender to replace Mr Powell, is pushing for further and faster cuts, beginning at the next meeting on December 10th, to support a weakening jobs market.
American workers have had a hell of a run. For almost a decade, barring a nasty few months in the pandemic, the unemployment rate has bounced around 50-year lows. Wages have surged, too—fast enough to outpace even the highest inflation since the 1970s. As a consequence, the poorest Americans have flourished: real wages for the lowest earners are up by 19% since 2015, compared with 11% for the highest. Meanwhile, inflation is still high at 3%, and it is almost five years since the Fed met its 2% target. Why, then, the enthusiasm to ease? And, given the outward strength of America’s labour market, how credible are fears of a jobs-pocalpyse?
The case for concern has three parts. First, even if there have been no disasters yet, things are moving in the wrong direction. Job openings have been edging down—gradually but consistently—for the past year or two. Unemployment is creeping up. This is concerning since employment has a tendency to grow slowly and crash quickly. Once a threshold is reached, past experience suggests, a downward spiral sets in that can be hard to reverse. Better, therefore, for the Fed to act early.
A second worry is that, whatever the official figures suggest, firms seem to be shedding workers. Amazon, a mighty online retailer, and Verizon, a telecoms firm, have both announced plans to sack tens of thousands. An influential tracker of firing plans maintained by Challenger, Gray and Christmas, an employment consultancy, showed private-sector firings spiking last month to their highest in over a decade, excluding the pandemic. A broader measure, based on official notices that bigger companies must file ahead of big job cuts, has also risen a little over the past month (see chart 1), as have mentions of lay-offs in earnings calls.
The final reason for concern is glum survey data. Consumer confidence has been dire ever since the post-pandemic inflation surge. It is now near a record low. Over the past few months Americans have also started to worry about what will happen if they lose their job. Respondents to a survey by the New York Fed put their odds of finding a new one in the next three months at under half, worse even than in the midst of the pandemic.
Before the fall
On each front, however, there are counter-arguments, suggesting that the pessimism may be overdone. Unemployment is creeping up, but at 4.4% it is hardly high by historical standards. Indeed, it has been higher nearly three-quarters of the time since 1948, when comparable data began to be collected (see chart 2). The share of prime-age workers (25- to 54-year-olds) in employment has been steady at around 80% for the past few years, almost the highest ever. Revisions firmed up soft payroll numbers that had caused concern over the summer. Some 119,000 new jobs were created in September, well above the 50,000 or so that forecasters expected. Data for later periods have been delayed by the government shutdown, but claims for jobless benefits are still low. Although people fret about finding a job, there has only been a slight uptick in the number who actually expect to lose their current one.
Analysis by Goldman Sachs finds that lay-off announcements tend to run about two months ahead of actual jobless claims. The bank now puts the odds of a half-a-percentage-point rise in the unemployment rate over the next six months at as high as 25%, up from 10% in the spring. Thankfully, though, the economy has some buffers. Probably the most popular gauge for when to panic is the Sahm Rule, named after Claudia Sahm, a former Fed economist. The measure looks for a short, sharp rise in unemployment, which tends to happen when a recession is on the way, by comparing the current unemployment rate with its trough over the past year. In August 2024 it hit the danger zone, but only briefly. This year, unemployment has risen more slowly and the recession threshold is nowhere close to being reached (see chart 3).
The strongest reason to doubt an imminent jobs collapse is that there is no good reason for one. GDP growth is on track for a stonking third quarter if the Atlanta Fed’s widely watched “nowcast” is to be believed. Stockmarkets have been soaring and corporate-debt markets are pricing in ultra-low odds of default. Wage growth is solid, too. So long as the rest of the economy keeps rolling, it is difficult to imagine the labour market keeling over. An AI-fuelled automation boom could prompt lay-offs. Yet surveys suggest that, if anything, adoption in most of the economy has tapered off a little.
A more plausible explanation for the present weak patch, and for companies’ reluctance to hire, is Trumpian uncertainty. That is now beginning to ease. The chaos of Mr Trump’s tariff roll-out seems to be receding. Deportations and changes to visa rules will remain disruptive, but businesses are starting to adapt. Although 2026 is unlikely to be a year of calm and clarity for America, it may well be a bit less frenzied. That would boost the labour market. American workers’ decade-long hot streak may have longer to run.