Wilmington Trust Flags Labor Market Weakness as Red Flag for Markets Amid Slowing Economic Growth

This analysis is based on Meghan Shue’s appearance on CNBC’s “Closing Bell” [1] on

, where the Wilmington Trust Chief Investment Strategist discussed earnings season and characterized labor market weakness as a significant concern for markets.

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The December 2025 employment report revealed structural challenges that support Shue’s warning [4]:

Metric	December 2025	Context
Jobs Added	50,000	Below 60,000 consensus
2025 Annual Total	584,000	vs. 2 million in 2024
Unemployment Rate	4.4%	Down due to shrinking labor force
Median Unemployment Duration	11.4 weeks	4-year high

The 2025 monthly average of ~49,000 jobs represents a sharp decline from ~168,000/month in 2024, marking the weakest annual job growth since 2003 outside recession years [4].

Major indices showed mixed-to-negative performance on January 13, 2026 [0]:

Index	Daily Change
Dow Jones	-0.86%
Russell 2000	-0.43%
S&P 500	-0.20%
NASDAQ	-0.11%

Sector rotation reflected defensive positioning [0]:

• Outperformers
  : Real Estate (+1.73%), Consumer Defensive (+0.84%), Energy (+0.70%)
• Underperformers
  : Consumer Cyclical (-1.08%), Communication Services (-0.72%), Healthcare (-0.72%)

The firm’s Capital Markets Forecast identifies three interconnected risks [2][3]:

1. Tariff Impact
   : “Unprecedented post-WWII tariff levels” creating business uncertainty
2. Labor Supply Constraints
   : Demographics, immigration restrictions, and AI adoption constraining workforce
3. Fiscal Pressures
   : Rising sovereign debt affecting rates, housing, and currency

The firm expects U.S. economic growth to slow below 1% in 2026 [2].

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The labor market data suggests this is not merely cyclical weakness. Manufacturing lost 68,000 jobs in 2025, while federal government employment declined by 274,000 jobs [4]. The “low-fire, low-hire” dynamic—with initial jobless claims near 4-month lows at 211,750—indicates employers are holding steady rather than expanding [5][6].

The Consumer Cyclical sector’s underperformance (-1.08%) reflects market concerns about spending sustainability [0]. Wage growth remains solid at 3.8% YoY [4], but weakening employment momentum could pressure consumer confidence.

Wilmington Trust notes markets are characterized by “elevated valuations, historically high equity concentration and tight credit spreads” [3], increasing vulnerability to disappointing economic data.

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Risk	Severity	Timeframe
Consumer spending decline	High	Near-term
Manufacturing contraction	Moderate-High	Ongoing
Fed policy lag	Moderate	Q1-Q2 2026
Earnings disappointments	Elevated	Q4 2025 results

• AI-driven productivity gains may offset labor constraints longer-term [3]
• Initial jobless claims remain historically low [5]
• Wage growth supports income fundamentals [4]

Based on Wilmington Trust’s framework [2][3]:

• Defensive sectors (Real Estate, Consumer Staples) showing relative strength
• Investment-grade credit favored over high-yield
• Precious metals and diversified currency exposure as hedges

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Indicator	Next Release	Significance
Initial Jobless Claims	January 15, 2026	Weekly labor pulse
Fed Meeting	January 27-28, 2026	Policy trajectory
January Employment Report	Early February	2026 trend confirmation
Q4 Earnings	Ongoing	Corporate labor demand signals

• December jobs growth (50,000) significantly below 2024 monthly average (168,000)
• Annual 2025 job creation (584,000) at multi-decade lows outside recessions
• Defensive sector rotation evident in market positioning
• Wilmington Trust projects sub-1% GDP growth for 2026

• Specific sector/company risk assessments from Shue not disclosed
• Fed response to labor weakening remains uncertain
• Timing of AI productivity benefits unclear