Is the Job Market in a Funk or Is It Funky?

With almost two months of the year behind us, it’s time to check in on the so-called “no-hire, no-fire” labor market. Although there have been announcements of layoffs, the most recent employment report was good. The government said the economy added 130,000 positions in January vs. expectations for half of that amount. The unemployment rate edged down to 4.3 percent and annual wages increased by 3.7 percent, a full percentage point ahead of the inflation rate.

But the report also contained signs that everything is not hunky-dory. Each year, the Bureau of Labor Statistics (BLS) refines its recent numbers by incorporating more comprehensive data based on unemployment filings. It reported 584,000 fewer jobs than originally reported in 2025. The revised numbers mean that 2025 monthly job creation averaged just 15,000. The revisions are evidence that job seekers who have struggled over the last year are not crazy! The labor market did in fact weaken over the past year or so, and the official numbers confirmed it.

All of this begs the question: Is the labor market in a funk or is it funky? Perhaps that’s what Fed Chair Jerome Powell meant when he said that the crosscurrents make “it a difficult time to read the labor market.” In an interview with Nobel laureate Paul Krugman, economist Claudia Sahm said that she did not see a recessionary dynamic in the labor market, but U.S. job creation has “been slowing for some time” which amid economic growth, means that the labor market is not looking like it might be in a “typical business cycle.”

KPMG Chief Economist Diane Swonk underscores that the tepid job market flies in the face of the AI boom, which has propelled the economy, but has “failed to deliver on other investments and job gains.” AI is looming over the labor market, but it does not appear to be a story of technology replacing humans.  A recent survey from Harvard Business Review found that the reluctance to hire is “almost completely in anticipation of AI’s impact, as companies wait for generative AI to deliver on its promises.”

Context always matters, and while AI will certainly impact many industries, The Economist notes, “Since late 2022, America has added roughly 3 million white collar jobs, a slowdown in hiring for some entry-level white-collar work detected lately by academic research appears to predate ChatGPT and, as such, may have more to do with rising interest rates and an increasingly unpredictable global business environment.”

Still, when economists say the current labor landscape is “puzzling,” “unusual,” and “doesn’t look like historical periods,” I go into action mode and recommend concentrating on what you can control. Make sure that you have 6 to 12 months of living expenses in an emergency reserve fund. If you are short on the cash account, you may want to temporarily reduce your retirement plan contributions or deposits into your college savings fund while you build it up. You should also be very careful not to assume any new obligations and put any large purchases on the back burner.

Finally, instead of worrying about AI, it’s time to push aside your own skepticism and fear and start to engage with it. Even if you don’t understand the application to your job, familiarize yourself with the available tools, and talk to friends and colleagues to see what they are learning from using what’s out there. If your profession is exposed to automation and could be replaced, lean into the jobs that rely on the skills AI has so far been unable to replace: judgment and empathy.