WASHINGTON — The United States economy is exhibiting an unusual trend that is raising concerns among Federal Reserve officials.
Despite robust economic growth and high productivity, job creation has slowed significantly this year, leaving policymakers grappling with how to steer the economy.
US companies have sharply reduced hiring, uncertain about the impact of sweeping economic policies introduced by President Donald Trump.
The Labor Department reported that the economy lost jobs in June and August, and the average monthly gain for the three months ending in September was only about 62,000.
The labor market has historically been a key indicator for the Federal Reserve in determining monetary policy. When the economy grows, businesses typically hire more workers, fueling consumption and further expansion.
However, in 2025, that traditional relationship appears to be weakening. While gross domestic product has remained resilient and workers’ productivity is high, companies are hesitating to expand their workforce.
Fed officials described the situation as a “particularly challenging environment for policy decisions” in their October meeting minutes released Thursday.
“The divergence between solid economic growth and weak job creation has created uncertainty in how to approach interest rate adjustments,” the minutes said.
Economists point to several factors behind the unusual economic pattern. One key driver is uncertainty over the long term effects of President Trump’s economic initiatives, including tax reforms and trade policy shifts. Businesses appear reluctant to make hiring commitments amid these unknowns.
Ryan Sweet, chief US economist at Oxford Economics, said the situation reflects a rare phenomenon known as a “jobless expansion.”
“Even with the Fed lowering borrowing costs, companies are cautious about taking on new staff,” he said. “Policymakers are trying to figure out how to incentivize hiring without overheating the economy.”
Another factor is the rapid adoption of artificial intelligence in the corporate sector. While AI investments are boosting productivity and output, they are also reducing the need for human labor in certain industries.
“Automation is increasing efficiency, but not necessarily employment,” said Tara Williams, a labor economist at Georgetown University.
Data from the Labor Department highlights the stark contrast between productivity and hiring. Productivity per worker has remained near record levels, supporting GDP growth. Meanwhile, payroll figures tell a different story:
- June 2025: net loss of 18,000 jobs
- August 2025: net loss of 12,000 jobs
- Average monthly gain July and September: approximately 62,000 jobs
In comparison, average monthly job gains in the same period last year were closer to 180,000. Consumer spending and corporate investment, particularly in technology and AI sectors, remain strong, indicating that the economy is expanding without commensurate employment growth.
The stock market’s recent record highs further suggest that businesses are confident about future earnings, even if hiring lags. Investors are particularly optimistic about AI driven productivity gains and the potential for higher returns.
Workers and small business owners across the country are feeling the effects of the unusual trend.
“I’ve been looking to hire two additional staff for our software firm, but we’re holding off because the rules around new economic incentives are unclear,” said Miguel Rivera, a tech company owner in Austin, Texas.
Meanwhile, employees report slower wage growth in sectors where job openings remain limited. “I see the economy booming on the news, but opportunities in my field haven’t increased much,” said Lauren Kim, a marketing associate in Chicago.
Federal Reserve officials face difficult choices as they balance the goals of sustaining growth and promoting employment.
Analysts suggest that the “jobless expansion” could persist if companies continue to prioritize technology investments over hiring.
“The central question for 2026 will be whether policymakers can find ways to encourage businesses to expand their workforce without triggering inflation,” Sweet said.
Economists also note that demographic trends, such as an aging workforce, may exacerbate the gap between economic growth and job creation. AI and automation could continue to reshape the labor market, creating high productivity without a proportional increase in employment.
The United States economy presents a complex picture GDP and productivity remain strong, yet hiring is sluggish, leaving a key component of economic health under strain.
Policymakers at the Federal Reserve must navigate a labor market that is decoupled from growth, raising questions about future interest rate policy and employment incentives.
As businesses adapt to technological changes and navigate policy uncertainties, the coming months will be critical in determining whether the economy can sustain growth while fostering broader job creation.