The delayed payrolls reports finally arrived, but the news is mixed, at best. The Labor Department said that sharp swings in hiring unfolded in October and November. Looking through the monthly volatility suggests that hiring is slowing, slipping to a pace that’s raises a warning flag for the economic outlook in early 2026.

Let’s start with the monthly change in total nonfarm payrolls. The economy lost 105,000 jobs in October, primarily due to cuts in government directed by Department of Government Efficiency (DOGE). Hiring bounced back in November to a moderate 64,000 gain.
 

To minimize the monthly noise and the distorting effects from DOGE, it’s helpful to focus on private-sector payrolls for the year-over-trend. On that basis, the profile is worrisome. Hiring at companies slowed to a 0.8% increase in November vs. the year-earlier level.
 

The sluggish pace in November is associated with the early stages of recession in recent decades. For example, the annual change in private payrolls fell to 0.7% in December 2007, which marks the start of recession, according to NBER. One counter narrative is that the aging labor force and immigrant deportations have changed the calculus for what defines a weak labor market trend. Perhaps, but at some point, if the 1-year change keeps dipping, the negative effects for the economy writ large will reverberate.
 

Unemployment is still low by historical standards, but the jobless rate continues to push higher, suggesting that layoffs will continue to rise.
 

One reason for reserving judgment on the outlook for the labor market: weekly jobless claims remain low and, despite recent volatility, continue to hold in a range. A sustained rise in claims over the next several weeks, however, would confirm the warning in the sliding 1-year trend for private payrolls.
 

On the plus side, several business-cycle metrics still suggest that the economy is growing. The Dallas Fed’s Weekly Economic Index through Dec. 6, after sliding recently, has stabilized over the past several weeks, reflecting moderate growth.
 

Meanwhile, a strong tailwind was blowing in the third quarter via the Atlanta Fed’s latest nowcast (as of Dec. 16). The government’s delayed Q3 GDP data is scheduled for release next week (Dec. 23).

The fourth-quarter, however, looks set for a materially softer gain. An early hint arrived in yesterday’s PMI survey data. The Composite PMI, a GDP proxy, slipped to its weakest pace since June. “The flash PMI data for December suggest that the recent economic growth spurt is losing momentum,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.”

Now-casting.com is estimating Q4 GDP growth at 2.1%. That’s a moderate pace, but far below the expected 3.5% increase via the Atlanta Fed’s current GDPNow estimate.

It’s too soon to confidently declare that a recession has started, but the risk has increased. Given various distortions affecting the economy, including tariffs, the recent government shutdown, and immigrant deportations, there’s still room for debate on the outlook for economic risk. But over the course of the next several weeks, as the data void from the shutdown fades, a clearer view will emerge.

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