December Jobs Miss Caps Weakest Hiring Year Since 2020
The economy added just 50,000 jobs in December as 2025 hiring totals the lowest since the pandemic. Unemployment dips to 4.4%, but the labor market's slowdown is undeniable.
The labor market limped into 2026 with a whimper.
December payrolls came in at 50,000—well below the 70,000 economists expected and marking an anticlimactic end to a year that produced just 584,000 jobs total. That's the weakest annual hiring since 2020 and the second-weakest since the financial crisis.
The unemployment rate offered modest encouragement, ticking down to 4.4% from November's 4.5%. But the headline obscures a labor market that has fundamentally shifted from the frenzied hiring of 2022-2023 to something far more cautious.
The Numbers
Beyond the top-line miss, the revisions told their own story. October payrolls were revised down by 68,000 (from -105,000 to -173,000), and November fell 8,000 lower than initially reported. Combined, the prior two months were 76,000 weaker than first estimated.
| Sector | December Change |
|---|---|
| Food Services | +27,000 |
| Healthcare | +21,000 |
| Retail Trade | -25,000 |
| Federal Government | +2,000 |
Healthcare and hospitality remain the reliable job creators—sectors driven by demographics and consumption rather than business investment. Retail shed 25,000 positions as the holiday season failed to spark meaningful hiring.
The federal government added 2,000 jobs in December, but remains down 277,000 for the year. The workforce cuts that accelerated through buyout programs in the fall continue to ripple through the data.
Wages Hold Up
Average hourly earnings rose 0.3% month-over-month, translating to 3.8% annual growth—the fastest pace in four months. That's the silver lining for workers: those with jobs are still seeing real wage gains above inflation.
But the wage picture cuts both ways for the Fed. Persistent wage growth above the 3.0-3.5% range that's consistent with 2% inflation complicates the case for further rate cuts. Minneapolis Fed President Neel Kashkari's assessment that the Fed is "pretty close to neutral" looks increasingly accurate.
What Caused the Slowdown
Three forces converged to produce 2025's hiring recession:
Tariff Uncertainty: Businesses pulled back on hiring amid unpredictable trade policy. The cost of importing materials fluctuated, supply chains remained in flux, and capital spending decisions got delayed. When companies can't forecast costs, they don't add headcount.
Pandemic Hangover: Industries that over-hired during the 2021-2022 labor shortage finally normalized. Healthcare, logistics, and technology all shed the excess capacity built when the labor market was impossibly tight.
AI Investment Crowding: Companies redirected budgets toward artificial intelligence implementation. The math is straightforward—every dollar spent on AI infrastructure is a dollar not spent on salaries. Firms are betting that automation will deliver more productivity than additional workers.
Fed Implications
Markets interpreted Friday's report as confirmation the Fed will stand pat in January. The CME FedWatch tool now shows a 97% probability of no rate change at the January 27-28 meeting, up from 88% before the data.
The path beyond January is less clear. Moody's economist Mark Zandi still sees three cuts before midyear, arguing that the labor market's softening will force the Fed's hand. Most analysts disagree, projecting one or two cuts at most for all of 2026.
The Fed's dilemma remains unchanged: unemployment is rising but not collapsing, inflation is falling but not dead, and wage growth persists above target. With Jerome Powell's term expiring in May, the central bank appears inclined to proceed cautiously rather than make aggressive moves a new Chair might need to reverse.
Market Response
Stocks rallied on the news, interpreting the miss as "good enough" for the Goldilocks narrative. The labor market isn't hot enough to spark inflation concerns, nor cold enough to signal recession. That's the sweet spot where equities thrive.
Treasury yields were little changed, with the 10-year holding near 4.73%. The bond market had already priced in a Fed on hold, and nothing in Friday's report challenged that view.
Looking Ahead
January's data—due in early February—will offer the first truly clean reading since the federal shutdown distorted Q4 numbers. If the hiring slowdown persists, the Fed may face pressure to resume cuts despite sticky inflation. If payrolls rebound, the "higher for longer" rate regime likely extends through summer.
For workers navigating this market, the message is mixed. Jobs remain available—unemployment below 4.5% is historically low—but the explosive demand of recent years has faded. Switching jobs for higher pay, the defining strategy of 2022-2023, carries more risk when employers are choosy.
The labor market works. It's just not working overtime anymore.