It’s been clear for some time that the US labor market is becoming less hot. Job growth is currently at one of its slowest rates over the past two decades. Dan North, Allianz Trade’s senior economist for North America, paints a dire picture about the precariousness of today’s employment. He paints it as “a mighty vessel whose course is changed by a very small helm. This analogy highlights the uphill battle and difficult interplay of forces working to take jobs away or hold them back from floating upward.
According to the most recent data, the underlying average job gains in this still-growing US economy have set at about 55,000 net new jobs a month. This figure shows the most striking departure from previous times of robust labor market expansion. Now, economists are optimistic about the future of the labor market. And with the unemployment rate rising, BLS says the number of job seekers has increased while fewer are finding jobs that match their skills.
The Current Landscape of Job Growth
In short, November’s labor stats represent a continuation of a perma-low-hire, perma-low-fire labor market. And according to chief economist Joe Brusuelas, when you want to keep labor market conditions stable that means you need to lose about 50,000 jobs a month. Yet at the current rate of job creation, we are not even close to meeting this standard.
Tight labor market Dan North reminds us that hiring hasn’t completely stopped. Yet too many workers are white-knuckling their way through their jobs. This sentiment is emblematic of the wait-and-see attitude currently pervading both employers and employees amid an unpredictable labor market. As businesses continue to face an unusual amount of uncertainty, many employers are still reluctant to grow their staff.
Perhaps the clearest obstacle, according to Cory Stahle, an economist at Indeed Hiring Lab, is the big-picture uncertainty on interest rates and overall policy. As he puts it, “There’s uncertainty about what rates are going to be, uncertainty about the price—true uncertainty around general policy. This vagueness only added to companies’ unwillingness to bring on new employees, as they were still scared of what the future would hold economically.
Factors Influencing Labor Market Performance
A perfect storm of exacerbating factors are at play driving lagging job growth. In addition, the aging Baby Boomer generation is retiring, creating a double whammy effect of a suddenly shrinking labor supply. At the same time, by tightening the pool of available workers, increased immigration enforcement has posed new challenges for employers trying to find talent.
Tyler Schipper argues that AI and policy uncertainty continue to face powerful headwinds to labor market growth. He challenges the idea that such conditions are needed to revitalize the labor market and laments the length of time these problems have already persisted. Those are huge bottlenecks and I have a difficult time imagining those being resolved anytime soon,” Schipper adds.
Seema Shah, the chief global strategist at Principal Asset Management is sounding the alarm. On the latter, she’s especially concerned with the longer-term effects of labor displacement and wage compression. She points out that absent these broader economic considerations we will be frequently and painfully returning to an economy of employment instability.
Potential Solutions and Future Outlook
Connecticut’s economists are hopeful that more cuts on interest rates from the Federal Reserve could make hiring more attractive. They caution that it often takes three to five quarters for such monetary policy shifts to fully impact the economy. The future tax law scheduled to go into effect in 2026 could have an impact on the labor market, Brusuelas noted.
There is an agreement among experts that immediate remedies are practically impossible. Schipper muses on the possibility of a K-shaped economy, in which some sectors prosper and others suffer. For better or worse, I think we could be in this K-shaped economy for a long time to come,” he declares. It’s his opinion that a recession would need to occur before real changes can happen. This is particularly the case for those located at the bottom half of the K.