The slowing labor market has complicated the Federal Reserve’s effort to keep a lid on inflation without further weakening employment.
Inflation remains stubbornly above the Fed’s 2% target and has even inched back above 3%, largely due to Trump’s tariffs, according to Fed Chair Jerome Powell. Meanwhile, U.S. job growth has fallen by half — from an average of 150,000 jobs per month a year ago to about 75,000 today.
Job growth in Connecticut has slowed as well. Monthly employment gains dropped from roughly 1,300 in 2024 to barely 500 in 2025. Job openings fell to their lowest levels since the immediate aftermath of the pandemic, while layoffs jumped sharply.
Private-sector hourly earnings, which outpaced inflation in 2024, stalled in 2025, making the cost of living increasingly difficult for households to manage.
Such challenges are likely to persist in 2026. Fed watchers see the possibility of multiple rate cuts again next year, especially with the appointment of a more accommodative Fed chair. Lower rates could give the labor market some running room but also risk adding pressure to prices.
Connecticut exports are also feeling the effects of policy uncertainty: the steady rise in trade volume hit a turning point at the start of 2025. Tariff volatility may ease now that the U.S. has reached trade deals with the European Union, United Kingdom, China and other partners, but these agreements are ever vulnerable to the president’s erratic swings in direction.
And Connecticut — 11th among states in its share of foreign-born workers and already grappling with declining labor force participation — is particularly exposed to the anxiety surrounding the administration’s mass-deportation policies.
Expect the slowdown in job growth to carry into 2026, with annual gains slipping from about 10,000 in 2025 to roughly 6,500. Unemployment will continue to edge higher, though labor-force headwinds should keep it from rising much above 4%.
Uncertainty on the trade front will add to the manufacturing sector’s challenges, which includes finding skilled workers to fill open positions, but not enough to prevent real state GDP growth from remaining positive.
Steven P. Lanza is an associate professor in residence at UConn and author of “The Connecticut Green Sheet”
