If a company wants to reduce its headcount, there are several levers it can pull. It could freeze hiring in order not to grow any further, or when people leave the business, their roles may not be filled. In 2025, there’s another option: Use AI to replace some of the roles managers would have otherwise recruited for.
“More districts reported contacts limiting headcounts using hiring freezes, replacement-only hiring, and attrition than through layoffs,” the Beige Book added. “In addition, several employers adjusted hours worked to accommodate higher or lower than expected business volume instead of adjusting the number of employees. A few firms noted that artificial intelligence replaced entry-level positions or made existing workers productive enough to curb new hiring.”
One example from the report was a retailer in the district of St. Louis, which reported it had experienced lower sales and, as such, had ordered less inventory to see them through the rest of the year. In order not to axe team members, the business slashed the hours staff were scheduled for.
Across the board, many districts also noted a pullback in consumer spending. For example, restaurant regulars who used to come in daily are now coming in once or twice a week, and returning customers are trading down on their purchases.
In tandem, many businesses “indicated that the composition of their workforce remains stable, with no need to raise wages beyond standard cost-of-living adjustments for either new or existing employees. Business leaders broadly expect employment to hold steady and expect hiring to pick up in 2026,” chimed in the Federal Reserve Bank of Kansas City.
The good news is (particularly for younger workers who have struggled to get into the jobs market) the outlook for 2026 is optimistic.
“After cooling gradually in 2025, we expect the labor market will stabilize and show signs of retightening over the course of the year. The unemployment rate should dip to 4.4% after reaching 4.5% this year,” Deutsche Bank’s Matthew Luzzetti and his team wrote in the institution’s World Outlook for 2026, released earlier this week.
“We expect demand and hiring to firm somewhat alongside growth,” the note added. “But, in the near term at least, risks remain that the ‘curious’ equilibrium of low hiring and firing breaks with layoffs picking up in a more sinister way.”
Indeed, Oxford Economics’ Bob Schwartz argued Friday that September’s better-than-expected jobs report shows a “labor market that had more muscle beneath the surface” than previously believed.
The much-anticipated jobs report came in with 119,000 roles added and a stable unemployment rate of 4.4, with Schwartz echoing a broader belief that much of the growth has come from spending by high-earners, reinforcing current thinking about the U.S. being in a K-shaped economy.
Discretionary spending from higher-income households is still doing the “heavy lifting,” he added, “but with stocks wobbling, that support isn’t guaranteed. In the end, September’s report doesn’t settle the debate—it just underscores how narrow and noisy.”
