The American labor market entered 2026 in respectable shape and continues to fight through challenges even as it weakens.
Federal data showed Friday that employers continued to be subdued in hiring in December and the unemployment rate fell, but hiring in 2025 was the weakest in five years, due in part to government workforce cuts and turbulent public policy.
According to the data, employers added 50,000 jobs in the last month of 2025 and the unemployment rate fell to 4.4 percent. Average hourly wages rose 0.3 percent on a monthly basis and 3.8 percent on an annual basis in December, an acceleration compared to previous months.
The report was the latest in a series of economic updates after several releases were delayed or canceled due to the federal shutdown. These economic updates have shown robust growth and spending, but continued weakness in the labor market.
Excluding the health care and social assistance sectors, which added about 700,000 jobs last year, private sector job growth this year was just over 20,000, said Samuel Tombs, chief U.S. economist at Pantheon Macro, a research firm.
These jobs are “more, in my opinion, a measure of demographics” in an aging society “rather than a measure of consumer or business confidence,” said Lia Taniguchi, director of research at Bullhorn, a cloud-based software provider for the staffing and recruiting industries.
“If you look at the professional roles, you still see a lot of weaknesses,” she said.
The job market has worsened over the past year, particularly for new college graduates and other job seekers. And people with jobs hold on tightly. Almost every week, data on new jobless claims in all 50 states shows that layoffs remain low.
The unemployment rate rose slightly over the course of 2025. Nevertheless, the labor force participation rate of people in their prime working years, between the ages of 24 and 65, remains at a relatively solid 83.8 percent.
Health care and social assistance continued to lead wage growth. There were 27,000 new jobs in the food and beverage sector this month. Healthcare employment increased by 21,000.
However, in most other sectors, job growth was low or had reversed. Guy Berger, director of economic research at the Burning Glass Institute, a firm that assesses labor markets, has found that the hiring rate is about the same as it was in 2010 to 2011, “when the unemployment rate was above 9 percent.”
Retail lost 25,000 jobs in December. Manufacturing employment fell by about 8,000 jobs last month and has fallen by tens of thousands of jobs since December 2024, despite President Trump’s promise that tariffs would lead to a boom in offshoring American factory employment. And although private sector employment gains remain positive, overall average employment growth appears to be slightly negative over the past three months.
However, right alongside the weakness in the labor market are the recent growth figures, which remain strong. Gross domestic product, the standard measure of overall economic activity, grew 4.3 percent on an annual basis in the third quarter; and productivity, a measure of output per employee, rose 4.9 percent.
Most analysts expect this momentum to weaken in the last three months of 2025. However, they still expect the $30 trillion U.S. economy to grow at a respectable pace in 2026 — above 2 percent — even as serious concerns remain about housing affordability and the overall cost of living.
Recent insights into the country’s employment situation reinforced expectations that Federal Reserve officials will leave interest rates unchanged when they meet later this month. However, intense deliberations are likely to continue in the coming months as some Fed officials have made clear they are becoming more prepared for the risk of a labor market slowdown.
The sustained decline in job vacancies and the rise in the long-term unemployed last year “points to the weakest labor market since mid-2017,” said Ernie Tedeschi, chief economist at Stripe, the financial technology company who worked for the White House Council of Economic Advisers during the Biden administration.
“The labor market in 2017 was certainly not recessionary and not even bad, but it was significantly looser than what we experienced later,” he said during the tight, worker-friendly labor market conditions just before the pandemic.
According to the data, an economic slowdown cannot be denied. Nevertheless, artificial intelligence may also be making its first structural mark on the economy, as sectors particularly affected by AI show signs of weakness. Professional and business services, which includes industries such as computer systems design and advertising, lost 9,000 jobs in December and 97,000 jobs in 2025.
“When I talk to company CEOs, they tell me, ‘Because of AI, we don’t need to hire people right now,'” said Joseph Brusuelas, chief economist at accounting firm RSM. “It’s a positive productivity shock.”
The sharp decline in immigration flows as a result of Trump administration policies has made it more difficult to assess labor force growth. And this year, other forces arising from Mr. Trump’s agenda are complicating labor market forecasts.
The Supreme Court is expected to rule soon on the legality of tariffs Trump imposed on national security grounds. Many small and medium-sized companies in particular are hoping for tariffs to be abolished. This could provide some price relief for companies and potentially free up money to hire more workers.
However, the White House has signaled that it could increase tariffs through other legal channels and laws if the tariffs are eliminated in 2025.
Many millions of Americans suffer from high rents and the lack of affordable homes for sale. But about two-thirds of U.S. households are homeowners, and most of them have fixed monthly mortgage payments or no mortgage at all.
Credit card data shows that low-income households have cut back on discretionary spending as they try to factor in higher living costs. However, the wealthy spend generously enough to keep overall national consumption data afloat. This could also reflect their relative sense of job security.
“We’re seeing a shift toward more strategic, higher-level roles, but away from things that are likely to be automated,” said Ms. Taniguchi, research director at Bullhorn.
When employers are picky, job seekers often just take what they can get, even if it’s a series of part-time jobs, temporary self-employment, or a side gig.
“I know a lot of people who say, ‘Well, I work as an Uber driver even though I’m a programmer because I’ve been unemployed for 10 months,'” Ms. Taniguchi said.