Deep Freeze Grips US Labor Market

The American labor market is currently experiencing a significant slowdown, with the hiring rate falling to 3.3% in December. This rate, which measures hires as a share of overall employment, is notably low compared to pre-pandemic levels and the period immediately following it.

Multiple factors contribute to this "deep freeze." Companies face uncertainty over tariff policies and higher short-term interest rates, impacting their ability to plan and hire. The tech sector is also dealing with an overhang of workers after aggressive hiring post-pandemic. Furthermore, the number of workers quitting their jobs has decreased significantly, suggesting a more cautious labor market.

Worker confidence in finding new employment is at a record low, with surveys indicating a decline in job-seeking prospects. This reluctance to leave current positions contributes to the reduced pace of hiring, as fewer roles need to be backfilled.

Immigration restrictions and an aging population have also reduced the number of new entrants into the workforce. Economists estimate a substantial decrease in potential monthly employment growth due to these demographic shifts and policy changes.

While artificial intelligence's impact is still being assessed, some evidence suggests it may be affecting employment prospects in specific AI-exposed fields. However, its aggregate effect on the broader U.S. employment market is considered minimal at this time, according to recent analyses.