Employment report December 2025

Labor market stalls at subdued pace

• December’s jobs report underscores a labor market stuck in low gear, with job growth barely clearing its breakeven pace and the unemployment rate ticking lower. The economy added just 50,000 jobs in December, falling short of expectations and signaling a modest slowdown from November’s downwardly revised 56,000 gain. Combined with a cumulative 76,000 downward revision to prior months, the three-month average of nonfarm payrolls now stands at -22,000, highlighting a clear loss of momentum.
  
  
• In 2025, the economy added just 584,000 jobs – a stark slowdown compared to the 2 million gained in 2024 and the weakest annual increase outside a recession since 2003. The underlying fragility of the labor market becomes even more apparent when excluding healthcare and social assistance: without the sector, the economy would have lost 129,000 jobs last year. This highlights just how narrowly concentrated job growth has become. Throughout the year, persistent policy headwinds weighed on business sentiment and curtailed hiring, prompting many firms to remain cautious and prioritize cost control and flexibility in response to an unpredictable operating environment.
  
  
• December’s details reinforce this pattern of narrow job gains. The private sector added a mere 37,000 jobs, with robust gains in healthcare and leisure and hospitality masking pronounced weaknesses elsewhere. The goods-producing sector shed 21,000 jobs amid mounting headwinds, with employment losses across construction, manufacturing and mining. Service-providing industries added 58,000 jobs, driven by robust increases in healthcare and leisure and hospitality, while most other industries posted declines, led by the retail, transportation, and professional and business services sectors. 
  
  
• The unemployment rate edged down to 4.4%, while the broader U6 measure – which includes marginally attached workers – fell 0.3 percentage points (ppt) to 8.4%. Part of the decline reflects weaker labor market engagement, as participation slipped to 62.4%. Meanwhile, wage growth showed renewed momentum, with average hourly earnings rising 0.3% month over month (m/m) and pushing annual wage growth up 0.2ppt to 3.8%. Less-favorable base effects and some moderation in monthly gains suggest this uptick will likely reverse in January.
  
  
• Taken together, these trends point to persistent fragility in the labor market as firms contend with uneven demand, elevated costs, margin pressures and persistent uncertainty. We expect job growth to remain well below trend, averaging only about 30,000 jobs per month in the first half of next year, with the unemployment rate gradually drifting higher toward 4.8%.
  
  
• For Fed policymakers, December’s report supports holding rates steady in January, with a 25 basis point (bps) rate cut in March and June. However, a more hawkish rotation among regional Fed voters and the appointment of a new Chair signal growing polarization in policy leanings as the year unfolds. With labor-market momentum fading and inflation likely to peak at current levels, further policy easing remains our base case, though the path will be increasingly contentious.
   

In the details

Private-sector payrolls rose by just 37,000 in December, a slowdown from November’s 50,000 gain, while government employment increased by 13,000 jobs, driven by small gains at the federal (+2,000) and state and local (+11,000) levels.

Over the past year, the federal government shed a total of 277,000 jobs, marking one of the steepest annual declines in federal employment outside of a recession. This contraction reflects the ongoing impact of budgetary constraints, hiring freezes and operational disruptions – including the recent government shutdown – which have weighed heavily on government staffing.

Within the industry details, goods-producing industries lost 21,000 jobs, with construction down 11,000 and manufacturing declining for an eighth consecutive month (-8,000). Service-providing industries added 58,000 jobs, with healthcare and social assistance (+39,000 jobs) and leisure and hospitality (+47,000 jobs) accounting for all of the gain. Most other service industries posted negative or marginally positive outcomes, including retail trade (-25,000 jobs), professional and business services (-9,000 jobs), and transportation and warehousing (-7,000 jobs).

The unemployment rate edged down to 4.4%, while the labor force participation rate slipped to 62.4%. The employment-population ratio ticked up to 59.7%. Long-term unemployment remains elevated at 1.9 million, representing 26% of all unemployed. 

On the wage front, average hourly earnings rose 0.3% in December, pushing wage growth up to 3.8% year over year (y/y) - a notable acceleration from the prior month, though base effects and some moderation in wage gains should lead to some reversal in January. Looking ahead, the persistence of soft labor market trends should keep a lid on wage growth, limiting the risk of renewed upward pressure on labor costs.

What this means for businesses

For business leaders, current labor market conditions reinforce the need for strategic workforce planning and disciplined cost management. Continued volatility in hiring and retention – especially outside of a few resilient sectors – means organizations must remain agile and prepared to respond quickly to shifts in demand, talent availability and the broader economic environment. Policy uncertainty and the risk of further economic headwinds underscore the importance of maintaining flexibility and resilience in workforce strategies, ensuring businesses can adapt to ongoing labor market softness and potential disruptions ahead.

The views reflected in this article are the views of the author(s) and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.