The latest U.S. labor market data is raising new concerns about the durability of economic growth, according to James Knightley, Chief International Economist at ING. Recent employment reports point to a clear slowdown in payroll expansion, with average job growth of just 22,000 per month over the past three months. Federal Reserve Chair Jerome Powell has also suggested that the Bureau of Labor Statistics (BLS) may be overstating job creation by roughly 60,000 jobs per month, further complicating confidence in the headline figures.
Knightley noted that employment momentum has steadily weakened throughout the year. A particularly troubling trend is the concentration of job creation across just three sectors. Approximately 91% of all jobs added over the past three years have come from government, leisure and hospitality, and private healthcare services. Each of these sectors now faces elevated risk. Government hiring is slowing, leisure and hospitality remains vulnerable to shifts in consumer confidence, and healthcare services face the possibility of future funding cuts as policymakers reassess spending priorities heading into 2026.
Despite occasional strength in headline employment numbers, Knightley remains cautious about the underlying health of the labor market. He argued that reliance on such a narrow group of sectors suggests the broader economy is largely treading water rather than expanding meaningfully. The prospect of Federal Reserve rate cuts adds another layer of complexity. While policymakers may begin easing rates this year, the delayed impact of previous tightening cycles will continue to influence labor conditions and business investment.
Knightley expressed measured optimism that fiscal support could provide some relief. Potential measures such as lower taxes and adjustments to social security payments may help shore up consumer confidence and create modest tailwinds for economic activity. However, he emphasized that these supports may be necessary simply to offset existing weaknesses rather than drive a new growth cycle.
The discussion also examined the global implications of U.S. monetary policy. Recent interest rate cuts by the Federal Reserve could place additional pressure on the U.S. dollar. As other developed markets, including Japan and the European Central Bank, consider raising rates, Knightley suggested the euro-dollar exchange rate could approach 1.22 next year. Such currency shifts may have significant consequences for global trade flows, capital markets, and cross-border investment decisions.
Attention was also given to the Federal Reserve’s balance sheet and the growing concern over fiscal deficits. With the possibility of future stimulus payments, Knightley suggested policymakers may need to revisit balance sheet strategies if long-term yields remain elevated and continue to exert pressure on borrowing costs.
Looking ahead, Knightley forecasts U.S. economic growth of approximately 2% in 2026, broadly in line with expectations for the prior year. Sustained support from both monetary and fiscal policy will be critical in stabilizing household spending and business confidence, which remain fragile amid shifting labor market dynamics.
Overall, the outlook presents a mixed picture. Slowing job growth, sector concentration, and data reliability concerns point to mounting risks beneath the surface. At the same time, cautious optimism remains that coordinated policy support could help the economy navigate the challenges ahead. As global economic conditions continue to shift, businesses and investors will need to remain vigilant as the U.S. labor market enters a more uncertain phase.