United States: a new job market?
Grow or die. This hyperbole has long summed up the functioning of the American job market. One statistic symbolises this: since the mid-1950s, when annual US employment growth[1] fell below 1%, this has always been accompanied or followed by a recession, at most two quarters later. This fateful threshold was crossed last June. However, six months later, and despite annual employment growth falling to 0.4% in December, the United States seems far from recession. Admittedly, the start of a recession, according to the definition of the National Bureau of Economic Research, is always determined only after the fact. Nevertheless, given the criteria used to define it, it is difficult to imagine that the United States is on the brink of one.
This observation raises a fundamental question: have the structure of the US economy and, more specifically, the labour market changed to such an extent that sluggish employment is no longer synonymous with a major economic slowdown? There are several arguments in favour of this view. In particular, the continuous increase in the US budget deficit over the past 10 years, which is disconnected from economic fundamentals. Since the post-war period, there has been a strong correlation between the unemployment rate and the budget deficit in the United States, with the latter increasing in parallel with unemployment during periods of recession and then falling as the employment situation begins to improve. This correlation ended in the mid-2010s, with the deficit trending upwards ever since, in parallel with increasingly low unemployment. Several events have marked this gradual disconnect: the introduction of the social security system known as “Obamacare” in 2013-2014, the tax cuts of Donald Trump’s first term in 2017, the support for the economy during the pandemic lockdown in 2020, and the Biden administration’s stimulus plans in 2021.Donald Trump’s firstterm in 2017, economic support during the pandemic lockdown in 2020, and the Biden administration’s stimulus plans in 2021.
A more resilient and less flexible labour market, against a backdrop of rising social spending: the United States would thus begin to resemble the functioning of certain European economies, where the labour market is highly inert. However, this is probably not the only explanation. Labour supply and demand have also been profoundly disrupted since the Covid period. Demand has fallen sharply in recent quarters, against a backdrop of economic uncertainty – particularly related to customs duties – and cost-cutting by businesses on the one hand, and the rapid adoption of AI in certain sectors on the other. This has not led to a surge in unemployment because, at the same time, the labour supply has been reduced in two ways. Firstly, there has been a decline in employment among the over-55s; the participation rate for this age group fell sharply during Covid and has continued to decline since then, while the participation rate has returned to normal for other age groups. Secondly, there has been a sharp decline in immigration since the summer of 2024, which has intensified since Donald Trump returned to power.
This reduction in the available labour force, coupled with the memory of the difficulties encountered post-Covid in rebuilding staff numbers, seems to be encouraging companies to adjust their workforce only sparingly, rather than making the drastic cuts they might have made in other times. This, combined with fiscal support, explains why the deterioration in the labour market is very gradual and is not currently affecting growth momentum.
Without causing a collapse, there is nevertheless a risk that weak employment growth will translate into low income growth, which will ultimately impact consumption. However, US households appear to have some additional consumption reserves. Firstly, credit usage is moderate, with outstanding consumer credit representing 22% of disposable income, the lowest figure – excluding Covid – since the late 1990s. With interest rates expected to fall in the wake of the Fed’s rate cuts, credit usage could easily increase. Secondly, although below the long-term average, the savings rate remains comfortable and far from the lows reached in the mid-2000s, for example, implying potential for additional consumption even without an increase in labour income. Finally, although this is difficult to measure using traditional economic aggregates, the continued growth in financial assets is positive for the “wealth effect”, thereby increasing the marginal propensity to consume.
Data from the coming months will provide us with a definitive answer. However, while it was unthinkable in recent decades, the scenario of resilient US growth despite a stagnant job market now seems possible.
Written on 09.01.202 6 | Enguerrand Artaz, Strategist, La Financière de l’Échiquier (LFDE)
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[1] In the sense of job creation, “Non-Farm Payrolls“