Thoughts

November 07, 2025 | 14:02

U.S. Job Market Stays Limp

Economist

Senior Economist and Director
Economics

Sal Guatieri is a Senior Economist and Director at BMO Capital Markets, with over two decades experience as a ma... (Read more)

Sal Guatieri

Senior Economist and Director
Economics

Sal Guatieri is a Senior Economist and Director at BMO Capital Markets, with over two decades experience as a ma... (Read more)

Last week, we discussed one possibly significant reason for slowing employment: the rapid deployment of AI systems. Sure enough, this week, we have data showing that American workers got more tricks than treats last month. Of course, the government shutdown also weighed. And, a second month of silence from the BLS lowers our confidence in measuring the labour market’s pulse. But what we can glean from private sector sources is dispiriting.

ADP private sector payrolls rose 42,000 in October, less than a third of the typical monthly gain. This followed a loss of 32,000 positions in the prior two months. Large declines in business professional services and the information industry likely reflected displacement due to AI. The federal shutdown didn’t help, with some government contractors laying off staff and more than a million federal employees going payless. But the slowdown began well before the shutdown. On average, just 46,000 private sector payrolls were added in the past nine months, down sharply from 167,000 in the same period previously.

Challenger layoff announcements spiked to more than double the norm in October. The surge was concentrated in warehousing and technology with the former reflecting increased use of automation. Even then, layoffs in other sectors were 17% higher than normal. After cost-cutting, the second most cited reason for shedding staff was AI deployment (Chart 1). For a third straight month, no firm blamed tariffs, suggesting the trade war might be losing its sting. Challenger also reported that seasonal hiring plans were the lowest on record, dating back to 2012. Getting rehired will take longer than usual.

Although the ISM manufacturing employment index improved to a five-month high last month, the level of 46.0 still indicates net layoffs. It was a similar story for the services sector with the index inching up to 48.2. While state initial jobless claims slipped to a five-week low (of 219,520) in the week of October 25, continued claims rose further and remain near four-year highs. Revelio Labs estimates that payrolls fell 9,000 in October with weakness even outside the government sector. It loosely tracks the official payroll numbers, so caution is warranted.

Lacklustre hiring may not be putting much pressure on the jobless rate, though. The Chicago Fed’s real-time estimate edged up to 4.36% in October, just a tad above the BLS’s last official tally of 4.32% in August. Deportations and immigration restrictions are constraining the labour supply.

The Fed strives for a steady, low jobless rate consistent with 2% inflation. While actual inflation is higher than desired, so too is the jobless rate, albeit slightly relative to the estimated natural rate of 4.2% (of the median FOMC member). Meantime, policy rates are still restrictive relative to the estimated neutral rate of 3.0%. This could provide cover for another rate cut should the labour market remain soft.