Labor Market Slowdown Expected to Continue

The US labor market is expected to show a continued slowdown in the upcoming jobs report, with economists forecasting the addition of only 40,000 jobs in November. This is significantly less than the 119,000 jobs added in September. The Federal Reserve has already taken note of the cooling labor market, citing it as a major factor in their decision to cut interest rates for the third time in 2025.

Key Takeaways

• The November nonfarm payrolls report is expected to show a significant slowdown in job growth, with only 40,000 jobs added.
• The unemployment rate is expected to remain at 4.4%, unchanged from September.
• The Federal Reserve has cited a cooling labor market as a major factor in their decision to cut interest rates.

A ‘Frozen’ Labor Market

The labor market has been described as "frozen" due to a lack of dynamism and churn. Job growth has slowed significantly, while the unemployment rate has edged up only slightly. This is due in part to new immigration restrictions, which have reduced the supply of workers. As a result, companies are not hiring, but they are also not letting go of workers.

November Jobs Report Forecast Highlights

• The job report is scheduled to be released on Tuesday, December 16, at 8:30 a.m. Eastern time.
• Nonfarm payroll employment is forecast to increase by 40,000 in November, versus 119,000 in September.
• The unemployment rate is forecast to remain at 4.4%.

Government Job Cuts to Weigh on October Payrolls

The October jobs report is expected to show significant losses in government jobs due to buyouts of federal workers. This will weigh heavily on payroll growth for the month. Economists are expecting to see government job losses on the order of 120,000 for the month, and overall job payroll losses of 65,000.

Is Jobs Growth Overstated?

There are concerns that the Bureau of Labor Statistics may be overstating jobs growth. Fed Chair Jerome Powell has suggested that the BLS data could be overshooting payroll growth by about 60,000 jobs per month since April. This would mean that the economy is not adding jobs at a rate of 40,000 jobs per month, but has lost about 20,000 jobs each month since April.

What’s Next for the Fed and the Labor Market?

The outlook for the economy is unusually cloudy, and the Federal Reserve is prepared to be patient before making its next move. Some economists are expecting a modest recovery in the labor market in 2026, while others are more concerned. The labor market is expected to be the deciding factor for the Fed in the months ahead, and significant weakness could tip the scales toward another interest rate cut in 2026.

Conclusion

In conclusion, the labor market is expected to show a continued slowdown in the upcoming jobs report, with economists forecasting the addition of only 40,000 jobs in November. The Federal Reserve has already taken note of the cooling labor market, and the outlook for the economy is unusually cloudy. The labor market is expected to be the deciding factor for the Fed in the months ahead, and significant weakness could tip the scales toward another interest rate cut in 2026. As the labor market continues to evolve, it will be important to monitor the data closely and adjust expectations accordingly.