It was the week before Christmas, and Americans got one more dispiriting look at the jobs market.
After a year of stalled hiring and “ghost jobs,” Americans are going back to school, retraining, and trying to get off the sidelines. But they’ve been flying blind after the longest federal government shutdown in history clouded the picture on job growth and unemployment. Finally, the October and November figures confirmed what most of them seem to feel already: The labor market has no room for them.
The unemployment rate rose to 4.6% in November, the highest since 2021. But this isn’t a standard recession: The BLS isn’t seeing layoffs happen as much in the private sector. Instead, it continues to see a virtual hiring freeze, two-thirds of a year after the bottom fell out of employment growth in April.
Jeffrey Roach, chief economist at LPL Financial, wrote in a note the jump in unemployment reflects a “transformation” in the labor force. Rather than unemployment being driven by layoffs, he said, “it was driven by an increase of individuals formerly not in the labor force.” In other words, people who had been without work for so long they weren’t considered to be in the labor force started looking during the holiday, and didn’t find any takers.
Changes could be driven by ‘idiosyncratic spikes’
That shift is becoming increasingly visible in the data. During the past year, the total number of unemployed Americans has risen by more than 700,000. The fastest-growing segment isn’t people who lost jobs, but “re-entrants,” or workers returning after a period of inactivity. That number spiked roughly 20% year-over-year, outpacing every other category of unemployed, according to a note from Nicole Bachaud, ZipRecruiter’s labor economist.
Bank of America Research, in a note by U.S. economist Shruti Mishra and her team, noted this increase was “noisy,” driven by one-time effects and “idiosyncratic spikes.” One such example she noted was the indirect impacts of DOGE. These “furloughed employees,” she said, likely drove this spike in unemployment. Leisure and hospitality jobs also fell in November, “likely due to slower air travel” as the FAA struggled with staffing. Air-traffic controllers were ordered to work without pay for over a month and the government slashed hundreds of flights, a situation the Trump administration addressed by only giving post-shutdown bonuses to the 776 workers who had perfect shutdown attendance, leaving out nearly 20,000 others.
Bachaud wrote she saw the increase of re-entrants as a “positive” signal, though, for the labor market, since it counteracts the dual negative forces of “an aging population and lower immigration.” It suggests people who were previously sidelined—by caregiving, health issues, or discouragement—are willing or compelled to try again, “rebalancing the labor force,” Bachaud wrote.
But in many cases, re-entry might not be a sign of optimism so much as a necessity. Pandemic savings are gone, inflation has strained household budgets, and higher borrowing costs have made living on one income more difficult to sustain. As financial cushions thin, the rebalancing Bachaud referenced is a function of the economy pushing more Americans back into the job search.
The Department of Government Efficiency (DOGE), Elon Musk’s short-lived effort to reduce the size of the federal government, also clearly drove a sharp federal payroll drop: The federal government shed 162,000 jobs in October alone as government employees’ “fork in the road” buyout offers took effect. Data suggests when Uncle Sam moves to aggressively shed headcount, it has a chilling effect on the entire private sector.
How the job search is changing
The average job search is also lengthening, another sign the hiring door is locked. The number of people unemployed for 27 weeks or more has climbed more than 15% during the past year, now accounting for nearly one-in- four unemployed workers, Bachaud calculated. At the same time, the ranks of marginally attached and discouraged workers—those hovering at the edge of the labor force—are also growing, suggesting some re-entrants may be cycling back out after failing to land work.
Wages are also no longer providing much of a cushion. Average hourly earnings rose just 0.1% in November, slowing annual growth to 3.5%, the weakest pace since 2021. This slowing down in wage growth, Roach wrote, “may turn out to be a big story for the job market in the coming months.”
Slower wage gains have the positive of easing inflation pressures—beneficial in a time in which more Americans complain about affordability—but they also limit income growth for households already facing tighter job prospects.
Industry data reinforces the imbalance. Outside of health care, social assistance, and construction, hiring has been flat to negative in recent months. Seasonal hiring—which typically helps absorb marginal workers over the holidays—has “disappointed this year,” particularly in retail, leisure, hospitality, and transportation, Bill Adams, chief economist for Comerica Bank, wrote in a note.
Adams described the labor market as having “hit an air pocket” in the fourth quarter. Federal job losses amplified the slowdown, but private-sector hiring outside a narrow set of industries has also failed to keep pace with rising labor-force participation.
The S&P 500 greeted the news with a disappointed shrug, down 0.8% intraday, as the jobs report was balanced by an October retail sales report that surprised to the upside, showing Americans are still splashing the cash, driving the all-important consumer spending that powers two-thirds of GDP. But as a general lump of coal in the stocking, Mishra concluded after so many months of strong spending that appears bifurcated by income cohort and a “low-hire, low-fire” jobs market, “the consumer labor conundrum remains.”
