‘We have not seen this rosy picture’: ADP’s chief economist warns the real economy is pretty different from Wall Street’s bullish outlook

For all the volatility 2025 has endured, things have actually turned out relatively well: The S&P 500 is up by more than 17%, inflation hasn’t spiked despite an onslaught of tariffs, and the unemployment rate has stayed fairly steady.

Analysts and investors are generally feeling positive about 2026 as a result—after all, the U.S. economy’s performance has been above expectations since the pandemic, so why not take a bullish stance in the face of huge fiscal stimulus?

Well, beneath the relatively robust macroeconomic picture, cracks are beginning to show. Those tremors are already being felt; just look at the Fed’s decision to cut the base rate yesterday despite arguments that, under normal circumstances, there would be no particular reason to. Markets expected the cut based on the labor outlook, which is showing some signs of weakness in what Fed chairman Jerome Powell has called a “low-hire, low-fire” economy.

That weakness looks likely to become something of a fixture in 2026, according to ADP’s chief economist, Dr Nela Richardson. ADP’s take on the economy has grown in prominence this year, partly due to the government shutdown which meant public payroll data wasn’t published. In the void came data from ADP, which shares private payroll data insights.

Unlike her economist peers on Wall Street, Richardson tells Fortune: “We’re tracking changes in real time, it’s as high frequency as payroll data [can] get and we have not seen this rosy picture for 2026 in the data. I think [when people] point to an improved labor market next year, they’re highlighting a couple of things in the macro economy, while we’re looking at this very granular data set of private employment.

“They’re highlighting maybe a couple of rate cuts, they’re highlighting some tax advantages on the fiscal side, and they’re probably highlighting some AI and investment paying off—and certainly they’re probably adding some clarity in terms of trade policy and resolving some of the macro [questions]. All fantastic attributes, but it takes longer for those to trickle to mom and pop.”

Richardson points to the latest jobs reporting from her company: U.S. private employment dropped by 32,000 roles in November, lead by weakness from smaller businesses. Companies with between one and 19 employees axed 46,000 roles, while those with 20 to 49 employees cut 74,000. Conversely, companies with 500-plus employees added 39,000 employees.

“Tiny firms are a big chunk of employment, but the tiny firms are making tiny moves, and they’re moving all in the same direction,” Richardson added. “It could be as small as not hiring two teenagers at the bakery or foregoing that delivery driver over a certain season, it doesn’t mean it’s a big, huge layoff, it’s not replacing a worker here or there, and those changes add up. 

“If you’re making those micro moves, micro decisions for mom and pop [businesses], these macro drivers are less likely to influence your patterns.”

A rapidly evolving picture

Once upon a time, a sound work ethic and perseverance were enough to get you a foot on the career ladder. In 2025, that’s no longer the case—just ask the business leaders at the top of some of America’s largest corporations.

And while it’s true Gen Z are facing an entirely different job market to their parents, the rules of engagement are evolving so rapidly that market entrants one year to the next are facing a different set of hoops to jump through—making the picture for 2026 all the more complex.

These shifts have not happened in a vacuum, says Richardson, but are more a culmination of trends over the past five years. The so-called “Great Resignation” and the advancement of hybrid work are chief among them. Hybrid work, for example, means the pool of competition has expanded rapidly with hiring managers no longer constrained to a certain geography.

Likewise, “the Great Resignation meant people were able to demand their own terms,” Richardson added. “That meant hybrid work, that meant higher salaries and bonuses, all kinds of promotions happened during that time. Why leave?”

These factors mean the goalposts are constantly changing for market entrants: “It’s not even generation to generation,” Richardson says. “It’s your older brother and sister who graduated three or four years ago, it’s not even their job market anymore.”

This story was originally featured on Fortune.com