One major shift underpinning weaker hiring is rising productivity. According to the Bureau of Labor Statisticsʼ Productivity and Cost report, non-farm business sector labour productivity increased 4.9 percent in the third quarter of 2025. Productivity measures how much output the economy can produce for each hour worked. Firms are learning they can produce more with fewer workers due to earlier investments in equipment, software, and automation. Importantly, recent productivity gains are not just the result of widespread artificial intelligence deployment. The majority of it also reflects earlier capital investment in automation, data infrastructure, and machine learning-driven systems that predated the current wave of generative and enterprise AI adoption. As productivity improves, companies can protect or expand profit margins without increasing headcount. This makes monthly job gains near 50,000 more likely to become the norm.
Figure 7. Labour Productivity, Output and Hours Worked Source: Bureau of Labor Statistics) Hours worked declined by 0.3 percent overall and by 0.5 percent in manufacturing. Fewer hours worked can reduce income for lower-income households, raising the risk of weaker consumer spending after the holiday period. The Federal Reserve is likely to view this softness, combined with stalled hiring, as a reason to remain cautious. Policymakers are expected to keep rates unchanged in January while monitoring incoming data closely. This makes the March meeting of the Federal Open Market Committee, the next realistic opportunity for rates to fall, but this will depend inter alia on the size of upcoming data revisions. Current expectations, according to the CME FedWatch Tool (see Figure 8 below), point to two 25 basis-point rate cuts this year, with June emerging as a key window for policy easing.