Shenwan Hongyuan Group: The U.S. job market may gradually achieve "rebalancing" by 2026, but short-term weak demand remains a core contradiction.

Shenwan Hongyuan Group Securities released a research report stating that in 2026, the supply of labor in the United States may continue to shrink, while demand gradually stabilizes, and the employment balance remains low. On the supply side, Trump's immigration policy is tightening and difficult to loosen, with the target of repatriating one million illegal immigrants in 2026. On the demand side, government layoffs have temporarily ended, and the impact of tariffs on employment may weaken, but the "substitution effect" of AI on employment still exists. The labor market may present a "low-growth balance". In the short term, the U.S. unemployment rate is still more likely to rise than fall, with attention to the risk of triggering the "Samar rule" again. In the second half of 2025, the unemployment rate slowly increased, indicating that labor demand has become a "shortcoming." In the short term, the impact of tariffs, government shutdowns, and the substitution effect of AI will continue to suppress labor demand, increasing the risk of rising unemployment rates - the threshold for triggering the "Samar rule" is about 4.7%. Before the labor market "rebalances", the economic "K-shaped" differentiation is difficult to change, and the Federal Reserve's decision-making faces a dilemma. Historically, the scarcer the labor force, the more it helps increase the share of labor, while surplus may lead to economic "K-shaped" differentiation. This "double-edged sword" situation increases the difficulty of balancing Fed risks - in the short term, it may enhance loose tendencies, while in the medium term, it may increase the risk of inflation. Shenwan Hongyuan Group's main points are as follows: Since the middle of 2025, the United States has experienced a "cliff-like" decline in new non-agricultural employment, with increased risks of rising unemployment. Why has the U.S. employment market experienced a "big reversal", and how significant is the "substitution effect" of AI? Will the trend of "no employment growth" in the United States continue in 2026? I. Hot topic thinking: Big reversal and rebalancing - Outlook for the U.S. employment market in 2026 (A) AI and employment: Creating or destroying? "Structural impact" is reflected, but overall drag is limited The impact of AI on the "demand shock" in the U.S. employment market has attracted market attention but is currently mainly structural. The adoption rate of AI by U.S. enterprises has increased from 3.7% two years ago to 10% (September 2025); in October, the number of Challenger layoffs reached 153,000, an increase of 175% year-on-year, of which 21.7% came from the technology industry; in summary, the structural impact of AI is concentrated in three main areas: high AI exposure industries, young professionals, high-paying positions. However, overall, AI may not be the main reason for the weakening of U.S. employment in 2025. The main reasons are: 1) Since 2023, the increase in the adoption rate of AI is weakly negatively correlated with the change in employment growth rate (R = 0.09); 2) There is no sign of an accelerated adjustment in the occupational structure of residents; 3) Among enterprises using AI, enterprises tend to "retrain" employees rather than lay them off. (B) The main reason for the "big reversal" of U.S. non-agricultural employment in 2025: the impact of immigration and government layoffs may be greater Looking back at 2025, the U.S. employment market experienced a weakening in both supply and demand, manifested as "low recruitment, low layoffs". In 2025, the "big reversal" of new employment in the United States is a result of the synchronous shrinkage of supply and weakening demand. Furthermore, because the speed of supply contraction matches the speed of demand weakening, the labor market is basically in a state of "low growth balance" until there are signs of loosening. On the supply side, the net inflow of illegal immigrants could explain about half of the decrease in the number of new jobs. According to forecasts from the CBO and the Federal Reserve of San Francisco, the net inflow of illegal immigrants into the United States decreased by 1.6-2 million people compared to last year in 2025, which can roughly explain about 50% of this year's cooling in new non-agricultural employment; under the impact of the Trump administration's tightened immigration control policies, the "balance of gains and losses in employment" fell to 30,000-80,000 people in 2025. On the demand side, the impact of government layoffs, the "cost impact" of tariffs, and the "substitution effect" of AI are the main explanations. In 2025, the impact of non-agricultural employment cooling was 37% from government departments, and the impact of government shutdowns may be reflected in subsequent data; the growth rate of non-agricultural jobs sensitive to U.S. tariffs slowed by two-thirds compared to last year, and its impact continues to expand; the explanatory power of the white-collar industry for the weakened new non-agricultural employment this year is only 7.6%. (C) In 2026, the U.S. employment market may gradually achieve "rebalancing", but the short-term weakness in demand remains the core contradiction In 2026, the labor supply in the United States may continue to shrink, while demand gradually stabilizes, and the balance of gains and losses in employment remains low. On the supply side, Trump's immigration policy is easily tightened and difficult to loosen, with the target of repatriating one million illegal immigrants in 2026; on the demand side, government layoffs have temporarily ended, the impact of tariffs on employment may weaken, but the "substitution effect" of AI on employment still exists. The labor market may present a "low-growth balance". In the short term, the U.S. unemployment rate is still more likely to rise than fall, with attention to the risk of triggering the "Samar rule" again. In the second half of 2025, the unemployment rate slowly increased, indicating that labor demand had become a "shortcoming." In the short term, the impact of tariffs, government shutdowns, and the substitution effect of AI will continue to suppress labor demand, increasing the risk of rising unemployment rates - the threshold for triggering the "Samar rule" is about 4.7%. Before the labor market "rebalances", the economic "K-shaped" differentiation is difficult to change, and the Federal Reserve's decision-making faces a dilemma. Historically, the scarcer the labor force, the more it helps increase the share of labor, while surplus may lead to economic "K-shaped" differentiation. This "double-edged sword" situation increases the difficulty of balancing Fed risks - in the short term, it may enhance loose tendencies, while in the medium term, it may increase the risk of inflation. Risk Warning Escalation of geopolitical conflicts; U.S. economic slowdown exceeds expectations; Federal Reserve unexpectedly shifts to "hawkish" stance.