Economic Outlook: Jobs, Revisions, and Tailwinds

Jeffrey Roach (00:08):

Hi, I am Jeffrey Roach, Chief Economist for LPL Financial with three talking points for the current macro landscape. First, small businesses will feel the brunt in 2026. Now, one of the trends I've tracked recently is the insights from a private payroll company, ADP, and we recently saw private payrolls declined in November, and that decline was most pronounced for companies with fewer than 50 employees. Now, because of the month to month volatility, I do prefer to look at the three month average change for both the official BLS payroll data, as well as the private sector ADP report. Now that said, ADP reported net decline in private payrolls in November, the lowest since early 2023. The three month average change is now negative, as shown in that chart. Now, small businesses are especially feeling the pressure from trade uncertainty. Small businesses cut the jobs the most since May 2020, and bucking that trend, are education and health services where net hiring increased.

Jeffrey Roach (01:12):

Now, I expect these sectors to continue to offset the weakness in other sectors, such as information and manufacturing. Now the bottom line is this, the faltering labor market will be the focus for the Fed for the foreseeable future. And further, I expect unemployment rate will rise to 4.6% by the end of the year and remain elevated in 2026. However, those sectors I mentioned, education, healthcare services, financial sectors, will likely support the labor market next year, despite the overall slowdown in hiring. Second, revisions continue to wave a red flag. One aspect of the labor market that is concerning is the consistent downward revisions to the headline numbers, and that's from the establishment survey. Now, that survey conducted by the Bureau of Labor Statistics, is covering the firms, the establishments now due to the lapse in government appropriations, we will not have October household survey, and that's the survey that gives us the unemployment rate.

Jeffrey Roach (02:10):

Third, the economy has a few tailwinds. Okay, let's end on a positive note here. The Fed just published their November Beige Book, which is a compilation of company-level comments about how specific businesses are doing, and here are a few talking points with a summary for what it means going forward. Firms that had been absorbing portions of the tariffs do plan to implement price increases in the coming months, and this would of course create upside risk for inflation in the beginning of the new year. Also, new commercial construction remains concentrated in new data centers and more limited in other sectors. Also, banks continue to report strong credit quality, but they did note an ongoing rise in delinquencies and defaults, especially among households and small businesses. So the bottom line is this, overall, the economy is on a stabilizing path and should enter the new year with a few tailwinds. Two of those will be falling interest rates and record breaking tax refunds. Well, that's all for now. If you want more insights on global market trends, follow us on social media and take care.