The US labour market is sending mixed signals, with unemployment remaining low even as job growth slows. Last week’s jobs data showed that the U.S. jobless rate fell to 4.4% in December from 4.5% in November, its first decline since June. On the other hand, the Labor Department data showed that employers added just 50,000 jobs in December.

According to a Wall Street Journal report, the US economy saw the lowest pace of average monthly job growth in 2025 since 2003. US employers added 5,84,000 new jobs in 2025, which translated to about 49,000 jobs a month, on average. This was significantly lower than the trends in 2024, when the US economy added two million jobs, roughly about 1,68,000 jobs per month, according to the Wall Street Journal report.

The low employment-low jobs growth combination suggests people without steady, full-time jobs are finding it hard to enter a job market where hiring and firing have both slowed.

Is the US economy witnessing a slowdown?

Job market trends suggest that the world’s largest economy is being weighed down by uncertainty, largely due to President Donald Trump’s tariff and immigration policies.

However, it is too early to conclude that the economy is in deep stress.

Manoranjan Sharma, Chief Economist at Infomerics Ratings, pointed out that the slow jobs growth and low unemployment rate in the US are not oxymoronic, as unemployment can fall even when job creation is weak if fewer people are actively seeking work or if employment is contracting in specific sectors such as manufacturing, construction, or retail.

Sharma said that prolonged weak payroll growth outside a recession is uncommon, though not impossible.

“We generally view employment data as a lagging indicator, i.e., unemployment can remain low even as economic momentum slows. A recession does not appear imminent,” said Sharma.

Sharma said while sluggish hiring could suggest decelerating growth, unemployment remains relatively low, consumer demand continues to support pockets of hiring, and some estimates point to solid GDP growth in late 2025.

“Sluggish hiring is symptomatic of decelerating growth, likely reflecting policy uncertainty (including tariffs) as well as longer-term forces, such as demographics and automation. This warrants caution, though not alarm,” said Sharma.

Arindam Mandal, Head of Global Equities at Marcellus Investment Managers, said that while the recent employment data has been a little softer, it is not indicating a meaningful deterioration in the broader economic or earnings backdrop.

“Output and corporate profits have continued to hold up, suggesting that growth is being driven less by incremental hiring and more by productivity gains, automation, and operational efficiency,” said Mandal.

Mandal highlighted that the consumer spending in the US is not collapsing, but becoming more selective, supported by real income growth among existing workers rather than rapid job creation.

For equity markets, Mandal believes this has important implications.

“Earnings growth can persist even as hiring cools, but leadership is likely to broaden as investors place greater emphasis on cash flow durability, pricing power, and efficiency rather than pure volume growth or headline capex,” said Mandal.

This is why the markets appear to have started to look beyond a narrow set of high-valuation stocks toward other areas where productivity gains can lead to more margins and returns.

“At the same time, the combination of subdued job growth, tight credit spreads, and elevated geopolitical risks suggests that volatility could rise, even if the underlying cycle remains intact, reinforcing the need for discipline and selectivity in portfolio construction,” said Mandal.

What does a slowdown in the US economy mean for the Indian stock market?

The US tariff policy has begun to impact its economy, and further weakness is expected in the near future, which could lead to a decline in crude oil prices and a weakening of the US dollar. This will have a positive impact on the Indian economy and stock market due to potential foreign capital inflows.

“The ongoing tariff war has started showing its impact on the US economy. This is the beginning. Its economy will definitely slow down due to tariffs’ impact on consumer spending,” said G Chokkalingam, the founder and head of research at Equinomics Research Private Limited.

Chokkalingam believes a weakness in the US economy could be positive as it will drive down oil demand and its prices.

“This would be positive for the Indian economy as it will reduce oil demand and hence its prices will come down. Secondly, a slowdown in the US economy will reduce its option to be too aggressive on tariffs on imported goods,” said Chokkalingam.

Sharma underscored that US tariffs could reduce roughly 0.2%–0.6% from India’s GDP growth in FY26. However, strong domestic consumption, government spending, and services exports provide a buffer for India against global headwinds.

Sharma believes the overall impact of the US economic slowdown may remain modest relative to broader global risks, given India’s largely domestic-oriented growth model.

“While India is not directly affected, it will experience second-order effects. Nevertheless, solid fundamentals—robust consumption, services-led growth, and supportive policy—should help absorb external shocks, even as export-linked sectors lag,” said Sharma.

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