The rise in the unemployment rate to 4.6% is primarily driven by a dramatic increase in labor force participation over the last five months, which averaged 238,000 new entrants monthly. This suggests the issue is more about absorbing new workers than a deterioration in hiring.

While headline unemployment remains low, a subtle weakening is occurring through "job downgrading." Workers, particularly in warehouse and retail, are not being laid off but are seeing their weekly hours cut from 40-50 to 30-35. This loss of hours and overtime pay erodes their income and bargaining power without being reflected in official unemployment statistics.

The combination of solid GDP growth and weaker job creation is not necessarily a warning sign, but a structural shift. With productivity growth rebounding to its 2% historical average and labor supply constrained by lower immigration, the economy can grow robustly without adding as many jobs as in the past.

An analysis of ADP payroll data shows job growth is concentrated entirely in large companies (over 250 employees), while smaller firms are consistently shedding jobs. This divergence is attributed to smaller businesses' inability to absorb tariff costs or reshuffle supply chains, unlike their larger, more resilient counterparts.

Large-scale government furloughs didn't cause a significant increase in unemployment claims. The reason is that affected workers received six months or more of advance notice and severance. This extended period allowed many to find new employment before their benefits ran out, while others opted for retirement, muting the impact on jobless data.

ADP data reveals a stark divergence in the labor market. In November, companies with fewer than 50 employees lost 120,000 jobs. This indicates smaller firms are struggling disproportionately with tariffs and labor issues, while larger firms continue to add to their payrolls.

Mastercard's Chief Economist argues the labor market is in balance, not collapsing. A slowdown from 175k to ~70k jobs/month is a necessary correction from an unsustainable, post-pandemic surge. With both labor demand (hiring) and supply decreasing, key metrics like the unemployment rate remain stable, indicating equilibrium rather than decline.

By averaging data from ADP and Reveglio Labs, two key private sector sources, economists forecast that official Bureau of Labor Statistics (BLS) job growth figures for October and November will likely be close to zero. This points to a significant slowdown and stagnation in the labor market.

Including government employment in GDP calculations is a form of double-counting tax revenue that masks the true health of the private sector. A major reduction in federal workers would reveal a startlingly low real growth rate, exposing decades of underlying economic stagnation.