A significant stagnation in job growth since May coincides with both new tariff implementations (reducing labor demand) and stricter immigration policies (constraining labor supply). This combination has created a powerful dual shock that has effectively halted job creation in the US economy.

Instead of immediately passing tariff costs to consumers, US corporations are initially absorbing the shock. They are mitigating the impact by reducing labor costs and accepting lower profitability, which explains the lag between tariff implementation and broad consumer inflation.

The current labor market is in a state of paralysis, described as a "deer in the headlights" moment. Businesses, facing extreme uncertainty from tariffs and policy shifts, have frozen both hiring and layoffs. This creates a stagnant, low-dynamism environment where both employers and employees are cautiously waiting.

Businesses respond to the uncertainty of trade policy by adopting an "efficiency mindset." Rather than hiring, which carries risks in an uncertain environment, firms are making "no regrets" investments in automation and efficiency. These improvements provide benefits regardless of future tariff levels, making them a safer bet than expanding payroll.

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.

The inflation market's reaction to tariff news has fundamentally shifted. Unlike in the past, recent tariff threats failed to raise front-end inflation expectations. This indicates investors are now more concerned about the negative impact on economic growth and labor markets than the direct pass-through to consumer prices.

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.

The US labor market is stuck in a 'low hire, low fire' mode, preventing a more robust recovery. This stagnation is not from a lack of demand but is directly attributed to the combined effects of restrictive immigration controls and the lingering impact of tariffs, which suppress hiring activity and consumer purchasing power.

The labor market faces a dual threat. Weak demand, linked to tariffs and deglobalization, has already pushed job growth to zero. As AI adoption accelerates productivity, it could further suppress labor demand, potentially tipping the economy into a state of net job decline.