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50,000 jobs were added in December, following a similar gain in November, and the unemployment rate dipped to 4.4%. That is enough, at the moment, to quiet the fears of an unfolding labor market downturn, which will likely keep the Federal Reserve from cutting interest rates at their January 29 policy meeting.
The job gains continue to be narrow, however. Almost all of them were concentrated in health care, social assistance, leisure and hospitality, and local government. Many industries are still registering job declines: construction, manufacturing, retail, wholesale, warehousing and temporary help. General merchandise retail saw the biggest drop (19,400). Also, job gains in October and November were pared back, with private payrolls registering only 1,000 new positions in October. (Federal jobs fell by 179,000 in October, since many buyout offers specified a September 30 end date.)
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It is likely that the recent job gains will be revised downward in the next jobs data release on February 6, when the annual benchmark revision takes place. This adjusts the level of employment to match that of the larger Quarterly Census of Employment and Wages. The first monthly releases of the payroll employment numbers often miss turning points in the economy, because the government statisticians initially assume that the missing data will continue past trends. The Bureau of Labor Statistics has announced that they will be revising the methodology for how they account for missing data, in an attempt to improve the tracking of turning points.
One bright spot in the December report was that the unemployment rate dipped to 4.4%, down from 4.6% in November. 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 declined in December. But it’s likely that the unemployment rate will edge up through the first half of 2026, peaking at 4.7% before retreating to 4.5% by year-end 2026. Annual wage growth ended the year at a still-elevated 3.8%, but should continue to weaken gradually, ending a bit above 3.0% by the end of 2026. Pay increases tend to lag other labor market indicators.
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.
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