The U.S. economy is flashing warning signs on two key fronts: jobs and inflation.
Last Friday’s weak jobs report showed how heavily employment growth now depends on healthcare and support services such as daycare and nursing-home staff. Outside those segments, the rest of the economy has contributed almost no growth this year: only around 9,400 jobs a month on average, compared with 64,000 in healthcare alone, per Labor Department data.
In August, the private sector would have actually shed jobs without healthcare’s gains . That makes for an uneasy foundation because impending cuts to Medicaid are likely to slow that job growth.
Starting October 1, the first $17 billion in federal Medicaid cuts will take effect — part of a $911 billion reduction over the next decade under President Donald Trump’s One Big Beautiful Bill . The law cuts federal matching funds, imposes stricter eligibility requirements, and dictates that most recipients work or volunteer at least 80 hours a month. It also allows some Biden-era ACA subsidies to expire at year’s end , making healthcare coverage less affordable.
For hospitals, nursing homes, and home-care providers that rely heavily on Medicaid, that could translate into hiring freezes or even closures. According to recent Fed Beige Book research , “Many rural areas are underserved by healthcare professionals, including nurses, doctors, and support staff, and funding constraints are likely to exacerbate existing shortages.”
“Community leaders anticipated that upcoming changes to Medicaid may cause reductions in health care services more broadly, including hospital closures, as well as a greater number of uncompensated services,” the summary goes on . “Additionally, community leaders expected the new work requirements for Medicaid recipients to exacerbate existing childcare shortages.”
Meanwhile, data discrepancies are raising questions about just how real the healthcare boom in fact is. ADP figures show outright job losses in the sector this year, but official government data shows relative strength. A discrepancy between sector definitions (ADP’s vs. the government’s) could be behind the divergence, however.
Elsewhere in the job market, cracks are spreading. Much of corporate America is flush with profits —Big Tech, for instance, has been posting banner quarters — but companies from Microsoft to Salesforce are slashing headcount anyway . Shrinking payrolls are a growing trend across tech and tech-adjacent companies.
Inflation data is set to land later this week , likely commanding extra attention this time out. Most economists expect Thursday’s consumer price index to show an uptick, widening the spread between current levels and the Fed’s 2% target. The prices of services and goods appear to be rising sharply.
All this means the Fed faces a tricky set of conditions, and decisions, at its upcoming September meeting. A modest rate cut is widely expected , but the combination of rising prices and slowing job growth — often called stagflation — creates dangers that are difficult to simultaneously navigate. Cut rates too quickly or too steeply, and inflation could accelerate. Keep rates at current levels, and risk further weakening in the job market.