The U.S. economic system continues to be booming. Layoffs haven’t spiked. The inventory market continues to climb. And but, when a contemporary batch of labor market information landed Tuesday, one of many nation’s most revered economists mentioned it made her abdomen drop.
“It’s gut-wrenching,” Diane Swonk, chief economist at KPMG, instructed Fortune. “We’re growing, but we can’t generate jobs.”
“Rock bottom” hiring
Two releases—the November Job Openings and Labor Turnover Survey (JOLTS) from the U.S. Bureau of Labor Statistics and December’s private-payroll report from ADP—inform the identical story from completely different vantage factors. Hiring demand is cooling quick, and employee motion has frozen, but employers are additionally nonetheless reluctant to chop employees. The result’s a labor market caught in an odd, late-cycle equilibrium that Swonk mentioned seems to be nothing like previous expansions.
Begin with JOLTS, the Job Openings and Labor Turnover Survey, which, as official authorities information, holds extra water with economists than the non-public ADP information. Job openings fell to about 7.1 million in November, down sharply from October and practically 900,000 decrease than a 12 months earlier. The “quit rate,” which serves as the last word barometer for employee confidence and the flexibility to climb the profession ladder, remained stagnant at 2.0% in November (Swonk mentioned she was shocked by this quantity specifically). Economists haven’t seen this stage of inertia since January 2014, a interval when the nation was nonetheless clawing its means out of the Nice Recession.
In a wholesome economic system, folks stop for better-paying roles, driving wage progress for everybody. In the present day, nonetheless, employees are “clinging on” to the roles they’ve out of sheer concern, Swonk mentioned. This lack of motion has created a form of mobility entice the place the pure path to a middle-class elevate has basically vanished. Whereas ADP information reveals that “job-changers” noticed pay progress speed up to six.6% in December, Swonk argues this can be a statistical distortion. This “switching premium” is more and more reserved for a tiny elite of specialised AI expertise, whereas the typical employee finds that the premium for job-hopping has evaporated, inflicting attrition charges to plummet and corporations to freeze hiring.
This “frozen” state is additional evidenced by what ZipRecruiter Chief Economist Nicole Bachaud wrote in a notice was a “series low” in “other separations,” which economists often interpret to imply retirements and transfers. These fell to simply 232,000 in November. “Older workers are increasingly remaining in the labor market for longer,” Bachaud wrote, a development pushed each by rising life expectancy and “increased pressure on retirement savings due to affordability concerns.” It suggests potential financial hardship, as employees really feel compelled to increase their careers. In different phrases, many boomers can’t get pleasure from their golden years on this economic system.
Folks aren’t retiring, they aren’t transferring, and so they aren’t quitting. The labor market has (un)settled into an odd disequilibrium the place hiring is at “rock-bottom” ranges, as Samuel Tombs, chief economist from Pantheon Macroeconomics, wrote, however layoffs additionally stay low as a result of firms are hoarding the employees they have already got.
Economists say the reason lies in a mixture of post-pandemic warning and lingering labor shortage. After years of firms on the backfoot throughout the “Great Resignation,” many seem decided to not let go of the folks they’ve, at the same time as they quietly cease including new ones.
“We had overstaffing in the wake of the pandemic, so I see it as a bit of a hangover from the surge [of hiring] as the economy reopened and everything went crazy,” Swonk mentioned.
The widening wage hole
Recent information from the Financial institution of America Institute offers a vivid take a look at how this stagnation is hurting completely different earnings teams in another way, displaying a “pronounced gap” within the wage progress expertise. In December, higher-income households noticed after-tax wage progress of three.0%, whereas middle-income progress dropped to simply 1.5%—its lowest level since Could 2024. For lower-income households, the scenario is even tighter at 1.1%.
With inflation nonetheless persistent, this implies middle- and lower-income households are successfully seeing destructive actual wage progress. They’re working in an economic system that’s increasing on the charts, however feeling poorer with each paycheck. This “K-shaped” divergence is fueling a spending divide the place prosperous households preserve the economic system “booming” via high-end journey and providers, whereas the underside 80% battle to make ends meet.
This financial fracturing is taking a bodily toll on sure elements of the nation. The December ADP report revealed what, if the info is correct, could be an enormous localized disaster: the West area shed 61,000 jobs in a single month. This collapse was pushed by the tech {and professional} sectors within the Pacific sub-region, which misplaced 59,000 positions. Swonk factors to this as proof of “jobless growth,” the place corporations are leveraging effectivity to “do more with less”. Whereas some analysts from Oxford Economics argue the AI-driven shakeup continues to be “patchy,” Swonk notes that firms are aggressively chopping the white-collar assist roles and middle-management positions that have been as soon as the bedrock of the center class.
Whether or not these cuts mirror real productiveness beneficial properties from AI—or just a belated correction after post-pandemic overhiring—continues to be unclear, Swonk mentioned.
The delicate one-legged stool and a faint silver lining
Maybe most regarding for consultants is how slender the bottom of our financial progress has turn out to be. For a lot of late 2025, the labor market was propped up by a single sector: Schooling and Well being Companies, which added 39,000 jobs in December. Swonk refers to this as a “one-legged stool” that’s lastly beginning to buckle, particularly as childcare subsidies freeze and the general public sector broadly faces margin compression from tariffs.
Nevertheless, the outlook for the remainder of 2026 stays subdued. Jeffrey Roach, Chief Economist for LPL Monetary, wrote that he expects month-to-month non-public payroll progress to stabilize at a meager 50,000 for a lot of the 12 months. He mentioned he was optimistic that non-public payroll progress might have “bottomed out,” however his chart spoke volumes in regards to the precipitous decline in hiring.
Whereas a short lived “sugar high” from tax refunds and minimal wage bumps in 19 states would possibly present a short-term carry to spending, Swonk mentioned the reduction shall be short-lived. The economic system, as it’s, is extremely susceptible to a market correction.
“If you have anything that is a negative shock that hits the top 20%, you take down consumer spending pretty quickly,” Swonk mentioned. “And that’s two-thirds of the economy.”
