Labor Market Snapshot: A Tenuous Equilibrium

“ In the labor market, indicators suggest that conditions may be stabilizing after a period of gradual softening. ” -Fed Chair Jerome Powell “ Make no mistake—official government data…was positive for January and a very encouraging sign of a turnaround. But I will say again, one month is not a trend, and that is especially true after the kind of labor market that limped along in 2025. ” -Fed Governor Christopher Waller After weakening through most of 2025, the most important labor indicators, the unemployment rate and payroll growth, have shown signs of stabilization in recent reports. While this is positive news, broader labor market indicators suggest that not all is well . Collectively the data describes a labor market that has transitioned from thriving and tight to balanced and cautious. The “low fire, low hire” dynamic represents a tenuous equilibrium, and we expect additional softness in the coming months, with a gradual rise in the unemployment rate, but we also expect resilient growth to arrest excess ive weakness. Our heat map (below) suggests a cautious mix as attention turns to Friday’s employment report for a read on the direction of the labor market.