Kiplinger Jobs Outlook: Moderate Growth, but Weakness in the Details
October and November jobs data confirmed moderate gains in private payrolls, but with rising unemployment, too.
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Nongovernment employment showed moderate growth in October and November, rising by 52,000 and 69,000, respectively. But the details of the reports point to weakness: Almost all of the gains can be accounted for by the health care and social assistance sectors. Job losses in the manufacturing sector continue and appear to be getting worse, as auto manufacturers have started pulling back on hiring. The temporary help sector continues to contract, having declined in 41 of the past 44 months. To make matters worse, it is likely that the recent job gains will be revised downward in early 2026 as more information comes in, and may even turn into modest job losses. The first monthly releases of payroll employment numbers from the Bureau of Labor Statistics often miss turning points in the economy, because the government statisticians initially assume that the missing data will continue past trends. The BLS has announced that they will be revising the methodology for how they assume missing data, in an attempt to improve the tracking of turning points. Finally, government hiring will not be a help anytime soon: 162,000 federal employees were taken off Washington’s payroll in October after agreeing to take buyouts, and federal employment is expected to continue to contract modestly going forward.
More signs of weakness: The unemployment rate has risen in each of the past five months, and now stands at 4.6%, though initial unemployment claims remain low, meaning mass layoffs are still rare. The number of workers reporting that they want full-time work but had to settle for part-time jobs rose sharply in October and November. Workers either had their hours cut or were able to find only a part-time job.
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Expect the unemployment rate to continue to edge up through the first half of 2026, peaking at 4.8% before retreating to 4.5% by year-end. Wage growth looks like it will end this year at about 3.5% and continue to weaken gradually, ending at 3.0% by the end of 2026. Wage growth tends to lag other labor market indicators.
Consumer and business uncertainty about the economy will continue to delay hiring plans and should slow future pay gains. Employers often defer hiring when consumers are concerned about losing their jobs, or when businesses don’t know whether there will be a positive return to investing in additional workers. Job growth could disappear almost entirely next year, if enough employers decide to hold off on hiring while they sort out the effects of the new tariffs on both their businesses and the economy as a whole.
If the job market weakens further, however, expect the Federal Reserve to come through with more interest rate cuts in an effort to boost the economy. We expect at least two more quarter-point cuts, and perhaps three, in 2026. The Fed will see employment data for December prior to its January 28 policy meeting.
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