The United States labour market is presenting a complex picture as it enters 2026, marked by a persistently low unemployment rate but a significant deceleration in the creation of new jobs. This unusual combination is raising questions about the underlying health of the world's largest economy and its potential ripple effects across global markets, including India.
Decoding the Contradictory Jobs Data
Recent data from the US Labor Department reveals a nuanced scenario. The unemployment rate actually dipped to 4.4% in December 2025 from 4.5% in November, marking its first decline since the middle of the year. However, this positive signal was undercut by the meagre number of new positions added. Employers created only 50,000 jobs in December, capping off a year of subdued hiring.
For the entire year of 2025, the US economy added just 584,000 new jobs. This translates to an average of roughly 49,000 jobs per month, representing the slowest pace of average monthly job growth since 2003. The contrast with the previous year is stark; in 2024, the economy generated two million jobs, averaging about 168,000 per month.
This situation of low unemployment alongside weak job growth suggests a tightening job market where entry for those without steady work is becoming difficult, as both hiring and firing processes have slowed down.
Expert Views: Policy Uncertainty and Productivity Shifts
Economists are parsing the data to understand the drivers behind this trend. Many point to policy uncertainty, largely stemming from former President Donald Trump's tariff and immigration policies, as a weight on economic momentum. However, they caution against alarmist conclusions of an imminent recession.
Manoranjan Sharma, Chief Economist at Infomerics Ratings, explained that the two trends are not necessarily contradictory. "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," he noted. He views employment data as a lagging indicator, suggesting that while economic momentum may be slowing, a recession does not appear imminent. He attributes the sluggish hiring to decelerating growth, reflecting policy uncertainty and longer-term forces like demographics and automation.
Arindam Mandal, Head of Global Equities at Marcellus Investment Managers, offered a different perspective, focusing on productivity. He highlighted that while job data has softened, broader economic output and corporate profits remain resilient. "Growth is being driven less by incremental hiring and more by productivity gains, automation, and operational efficiency," Mandal stated. He added that consumer spending is becoming more selective, supported by real income growth among existing workers rather than rapid job creation.
For equity markets, Mandal believes this shift means earnings growth can continue even with cooler hiring, but investment leadership will broaden to focus on cash flow durability and pricing power.
Implications for the Indian Economy and Markets
A potential slowdown in the US economy carries significant implications for India. Analysts see a silver lining for the Indian stock market and economy. G Chokkalingam, founder of Equinomics Research, argues that US economic weakness could lead to a decline in global crude oil prices and a softening of the US dollar. Both factors are traditionally positive for India, a major oil importer, and could attract foreign capital inflows.
"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," Chokkalingam said.
However, the impact is not unilaterally positive. Sharma underscored that US tariffs could shave off approximately 0.2% to 0.6% from India's GDP growth in FY26. Despite this, India's strong domestic consumption, government spending, and robust services exports provide a substantial buffer against global headwinds.
Sharma concluded that India's largely domestic-oriented growth model should help it weather external shocks. "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," he affirmed.
