Is anybody hiring? A weakening U.S. job market may push the Fed to cut rates again.

By Jeffry Bartash

The economy is barely adding jobs - and it might even be losing them

Paramount Studios recently said it was going to cut about 2,000 jobs.

Condition red isn't flashing for the U.S. job market, but its vital signs have deteriorated ahead of a pivotal vote by the Federal Reserve on whether to reduce interest rates again.

A barrage of mostly negative news in the past week has convinced Wall Street investors that a third straight rate cut is on the way. The website FedWatch shows that 89% of investors believe the Fed will reduce borrowing costs again at its Dec. 9-10 meeting.

"It will be difficult to argue that the labor market shows sufficient signs of stability to justify a pause in December," said Matthew Martin, senior U.S. economist at Oxford Economics.

No-hire economy

With key government reports on jobs and unemployment still delayed by the now-ended federal shutdown, Wall Street SPX has turned to normally second-string reports to tease out the health of the labor market. And what they show is not great.

Start with ADP, the nation's largest paycheck processor. ADP said privately run businesses eliminated 32,000 jobs in November, marking the biggest decline since the spring of 2023.

Employment has also fallen three of the last four months for the first time since the start of the pandemic five years ago, ADP found.

Nela Richardson, chief economist at ADP, said there hasn't been as much temporary holiday hiring as usual this year. Businesses are taking longer to hire and leaving open jobs unfilled, among other things.

"I think we are going to be in this situation for a few more months," she said.

Another source tracked by Wall Street, the labor-research firm Revelio Labs, also reported a decline in employment in November.

Two surveys of business executives, meanwhile, showed a drop in employment last month, according to the Institute for Supply Management.

"Available data sources suggest employers shed jobs in the fourth quarter amid federal layoffs and feeble private hiring," said Bill Adams, chief economist of Comerica Bank.

Low layoffs

The one bright spot in the labor market is the surprisingly low level of layoffs, which has helped to keep unemployment low at 4.4%. New jobless claims fell to a three-year low in early December.

Although the decline was exaggerated by the Thanksgiving holiday, layoffs have shown little sign of rising. Businesses are mostly avoiding outright job cuts, resorting instead to less harsh methods of controlling labor costs.

Top Fed officials are sure to be relieved by the low level of layoffs. Yet if hiring weakens any further, the lack of new jobs being created is likely to result in a rising unemployment rate.

That's precisely what the Fed wants to prevent. The central bank has cut interest rates twice since September to try to stabilize the labor market and keep unemployment low.

So the Fed vote on Dec. 9-10 should be an easy call, right? Not exactly. Some officials are more worried about elevated inflation - prices are rising about 3% a year, above the bank's 2% target.

By law the Fed is supposed to keep both unemployment and inflation low. Investors and economists believe the central bank will put greater weight on the labor market when determining the level of interest rates.

"For now, the labor market is flashing yellow, not red," said Heather Long, chief economist at Navy Federal Credit Union. "The Fed needs to keep it that way."

-Jeffry Bartash

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12-04-25 1214ET