Goldilocks Lives: Soft Jobs, Cooling Demand, and Why This Morning’s Data Keeps April Rate Cuts in Play

This morning’s batch of U.S. economic data landed squarely in the “interesting, but not narrative-changing” category—a result markets are more than comfortable with at this stage of the cycle. While there were pockets of softness across labor and manufacturing indicators, nothing in the releases meaningfully disrupts expectations for the growth outlook, inflation trajectory, or the policy path. If anything, the data reinforced the prevailing Goldilocks setup: cooling just enough to keep rate cuts alive, but not so much as to signal a sharp deterioration in economic momentum.

The headline labor input came from the December ADP National Employment Report , which showed private payrolls rising by 41,000. That figure came in below consensus expectations but still marked a rebound from November’s decline. From a market perspective, this was close to ideal. Hiring remains positive, but clearly slower, suggesting the labor market is easing rather than breaking. Importantly, wage growth held steady, with job-stayer pay up 4.4% year-over-year and job-changer pay accelerating modestly to 6.6%. Those figures are consistent with gradual normalization rather than renewed inflation pressure, keeping the Federal Reserve comfortably on track for eventual easing without flashing recession alarms.

Digging into the ADP details reveals a labor market that is increasingly uneven but still functional. Education and health services led hiring gains, alongside leisure and hospitality—sectors that tend to reflect underlying consumer demand rather than speculative excess. On the other hand, professional and business services posted notable job losses, while manufacturing employment slipped again. Regionally, the South and Northeast drove gains, while the West saw a sizable decline, highlighting how regional dynamics continue to diverge. Overall, the report underscored that labor demand is slowing in a controlled way, which markets interpret as constructive.

The JOLTs report added a slightly more cautious undertone. Job openings edged lower, reinforcing the idea that labor demand is cooling, albeit gradually. While the level of openings remains historically elevated, the direction matters: fewer openings imply less upward pressure on wages and potentially less bargaining power for workers over time. That dynamic aligns with the Fed’s goal of rebalancing the labor market without triggering mass layoffs. Still, the steady erosion in openings bears watching, particularly if accompanied by a rise in unemployment claims or a sharper slowdown in hiring in coming months.

Manufacturing data also leaned soft, though again without delivering a shock. Factory orders declined 1.3%, reversing recent gains, with weakness concentrated in transportation equipment. Expectations heading into the release were already low, and the data largely met those subdued forecasts. Shipments were essentially flat, inventories were stable, and unfilled orders continued to rise, suggesting demand has slowed but not collapsed. The orders-to-shipments ratio ticked down modestly, but remains elevated by historical standards, indicating that production pipelines are still relatively full. In short, manufacturing continues to grind rather than slide.

In contrast, the ISM Services provided a brighter counterpoint. The index rose to 54.4 in December, its highest reading of the year and well above the 50 expansion threshold. Business activity and new orders both strengthened, while the employment index moved back into expansion territory for the first time in seven months. That matters, as services account for the bulk of U.S. economic activity. Encouragingly for policymakers, the prices index fell to its lowest level since March, hinting that inflation pressures within services—long a Fed concern—may finally be easing at the margin.

That said, not everything in the services report was uniformly positive. The backlog of orders index fell deeper into contraction, and the 12-month average PMI remains at its lowest level since 2024, highlighting a longer-term downtrend in momentum. Respondent commentary continued to flag tariff uncertainty, labor costs, and regulatory burdens, underscoring how policy variables remain a persistent headwind for planning and investment decisions.

Taken together, the data paints a picture of an economy that is slowing, but doing so in an orderly fashion. There is little here to force a rethink of the policy outlook. Markets remain comfortable penciling in April 29 as the next expected rate cut from the Federal Reserve, assuming upcoming data does not materially alter the trajectory. In that sense, this morning’s releases function more as confirmation than revelation.

Looking ahead, the real tests are still in front of us. Friday’s BLS jobs report will carry far more weight than ADP, particularly on unemployment and participation trends. At the same time, attention is shifting toward the Supreme Court’s expected ruling on IEEPA-related tariffs, which could have meaningful implications for trade policy, inflation expectations, and corporate margins. Layered on top of that are geopolitical risks emanating from Venezuela, Ukraine, and Russia, which currently exert more influence on market psychology than incremental economic prints.

The bottom line is that today’s data was effectively a non-event—constructive in its moderation, but not decisive. The Fed continues to receive evidence that its policy stance is working, and markets remain comfortable with a gradual pivot toward easing. For now, the narrative holds, but as always, the next few data points will matter more than the last.