The US economy appears to be firing on all cylinders: incredible economic growth, accelerating productivity, stabilized inflation, and an ultra-bullish stock market. The one wrinkle? The US labor market is not breaking the stratosphere like one of Elon Musk’s rockets. This brings us to the recent release of the latest jobs report, which was fine, but not on the Make America Great Again level.
US Labor Market in 2025
The meat and potatoes of the December nonfarm payrolls report is that the US economy added 50,000 new jobs and the unemployment rate fell to 4.4%. Average hourly earnings rose 0.3% monthly and climbed to 3.8% on a 12-month basis. Average weekly hours dipped to 34.2, while the labor force participation slid to 62.4%. In total, the United States created 584,000 jobs in 2025, averaging 49,000 per month, which is below last year's 168,000.
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So, certainly not a signal of pending doom, but not great either. That said, a deeper dive also reveals hiccups, suggesting the Federal Reserve may need to be more aggressive in lowering interest rates over the next few months.
First, revisions. Oh, the revisions! This has been a thorn in the Bureau of Labor Statistics' side for the past few years. The bureau reported that November's payroll growth was revised lower from 64,000 to 56,000. Additionally, October was worse than expected, with job losses totaling 173,000 instead of the initial 105,000. The good news, however, is that the unemployment rate was adjusted lower from 4.6% to 4.5%.
Second, it is worth noting where employment gains are concentrated. While the federal government workforce is shrinking – down 277,000 over the past year – adjacent industries are accounting for the lion's share of job growth. Health care employment rose by 21,000, and social assistance headcount jumped by 17,000. Additionally, food services and drinking places added 27,000 new jobs last month. Manufacturing and retail, meanwhile, shed jobs.
Finally, the tidbits scattered throughout the bureau's payroll report also spotlighted some consternation about employment conditions heading into 2026. The number of people not in the labor force but who currently want a job increased by 684,000 over the year to 6.2 million. The long-term unemployment rate, which is those out of work for 27 weeks or longer as a share of total unemployed, rose to 26%, the highest since February 2022. The employment-to-population ratio was flat at 59.7%.
Of course, it is not all doom and gloom.
What is interesting, however, is how muddied the US labor market is right now. While employers reported 50,000 new jobs at the end of 2025, households registered 232,000 new positions. Additionally, incomes are up and continue to grow, which is terrific news for those currently employed or seeking employment.
In the end, it appears that the country only needs to create about 50,000 jobs a month for the US labor market to remain stable and steady.
Need Fed Rate Cuts
Despite employment conditions stabilizing, it is evident that the Federal Reserve may need to be invaded by the doves. While a 4.4% unemployment rate is historically low, the lag effect of monetary policy suggests the Eccles Building needs to keep cutting interest rates, even if only by quarter-point increments.
