Key Takeaways

  • U.S. employers hired fewer workers than expected in December, with nonfarm payrolls increasing by only 50,000, data from the Bureau of Labor Statistics (BLS) showed on Friday.
  • The unemployment rate ticked down to 4.4% from 4.5% in November, the BLS reported, though it remained above the 4% level seen in January 2025. The report removed some distortions caused by disruptions in data collection during the six-week federal government shutdown that began in October.
  • "The environment we're seeing is still one where companies are slow to hire and slow to fire," Art Hogan, chief market strategist at B. Riley Wealth, said in an email.

Deeper Dive

Given concerns about labor market fragility, Federal Reserve policymakers cut interest rates by 25 basis points three times between September and December. The federal funds rate target range is currently 3.5% to 3.75%.

Following Friday's jobs report, interest rate futures traders raised the probability that the Fed wouldhold its key interest rate steady at its January 27-28 policy meetingto 95% from 88.9%, according to CME FedWatch data.

Two policymakers opposed the rate cut last month, while another Fed governor, Stephen Miran, opposed a larger cut.

"I expect about 1.5 percentage points of cuts in 2026. That's largely based on my view of inflation," Miran said Thursday, adding that "underlying inflation is running near our 2% target."

"There are about a million Americans who don't have jobs but could have them without generating unnecessary inflation," Miran reiterated his concerns aboutlabor market weaknessin a Bloomberg Television interview.

Employers in the public and private sectors announced1.2 million layoffslast year, a 58% increase from 2024 levels, outplacement firm Challenger, Gray & Christmas said in a report Thursday. The Department of Government Efficiency (DOGE) was a major driver of the cuts.

"Overall, we're seeing a significant increase in layoff announcements, well above the average for any normal year," Andy Challenger, chief revenue officer of the Chicago, Illinois-based outplacement firm, said in an interview.

According to a December 4 report from global investment manager Pacific Investment Management Company (PIMCO), thebroad tariffsimplemented by U.S. President Donald Trump last year dampened labor demand, while immigration restrictions reduced labor supply.

"Many companies accelerated the deployment of and investment in artificial intelligence (AI), while reassessing or consolidating their workforce, largely in response to tariff-related costs," PIMCO economist Tiffany Wilding said in the report.

Fiscal stimulus under the One Big Beautiful Bill this year could boost economic growth and stabilize the labor market, Wilding said.

Deloitte analysts expectemployment growth to turn "mildly negative" in the first quarter of 2026as high tariffs, reduced immigration, and higher interest rates dampen labor demand.

Federal government employment growth could slow the most this year, but private sector figures are also expected to slow, according to Deloitte's December 19 economic forecast.

According to the Challenger report, the government led all sectors in layoffs last year, primarily at the federal level, with a total of 308,167 cuts, a 703% surge from 2024. Federal layoffs declined significantly after the first quarter.

DOGE actions led to 293,753 job losses in 2025, including direct cuts to the federal workforce and its contractors. Another 20,976 were attributed to DOGE's "downstream effects," reflecting the loss of federal funding to private and nonprofit entities, the report said.

The technology sector led private sector layoffs, announcing 154,445 cuts last year, a 15.3% increase from 2024.

AI disruption triggered many layoffs, along with continued efforts to trim workforces after aggressive hiring during the 2020 pandemic to meet high demand for online services, Challenger said.

Warehousing and retail, which also accelerated hiring during the pandemic to meet higher e-commerce demand, ranked second and third, respectively, in private sector layoffs. Retail announced 92,989 cuts in 2025, up 123% year-over-year, while warehousing announced 95,317 cuts, up 317%.

Like the tech sector, warehousing and retail "seem to be coming back to reality as our economy normalizes and moves out of the pandemic period," Challenger told CFO Dive.

The surge in warehousing layoffs came as the industry grapples with automation, changing consumer behavior, and supply chain disruptions, according to the Challenger report. Similarly, retailers face challenges from more cautious consumer spending, tariff uncertainty, and rising prices.

Following DOGE actions, the main drivers of layoffs last year were market/economic conditions, store, unit, or division closures, restructuring, cost cutting, and AI.

The year ended with the fewest layoff plans of the year, according to the report. U.S. employers announced 35,553 layoffs in December, a 50% decrease from November's 71,321.

December's total was the lowest monthly figure since 25,885 were announced in July 2024.

"December is almost always very low, but this one was 8% lower than the same period last year," Challenger said. "While that could be a good sign, I don't want to read too much into it. It's just one month, and companies typically avoid announcing layoffs during the holiday season."