The labor market is stuck

December’s jobs report was a tale of two numbers.

Job creation in December came in weaker than expected, with nonfarm payrolls rising by 50,000, well below the 73,000 forecast. Yet the unemployment rate fell to 4.4%, beating expectations of 4.5%.

Hiring was concentrated in a handful of service industries: restaurants and bars accounted for the largest gains last month, adding 27,000 jobs, followed by healthcare and social assistance. By contrast, retail employment fell by 25,000, and government payrolls were essentially flat.

Healthy headlines, hollow hiring

While the unemployment rate is falling month by month, 2025 was far from a strong year for the labor market.

The US added just 584,000 jobs in all of 2025, the weakest year for job growth outside a recession since 2003, with nearly 85% of those gains occurring by April, according to Navy Federal Chief Economist Heather Long—indicating that hiring dwindled thanks to tariff fears following Liberation Day. Notably, healthcare (405,000 jobs added) and social assistance (308,000 jobs) alone more than accounted for total job creation last year, quietly offsetting job losses across much of the broader economy.

Blue-collar workers have borne the brunt of the slowdown. Last year, the US shed 65,000 industrial jobs, a sharp contrast to the 250,000 added in 2024. Manufacturing has led the decline, with its share of total employment falling to below 8%, a record low, as cyclical cooling and longer-term shifts weigh on jobs across goods-producing and transportation sectors.

Adding to the confusion, President Trump appeared to reference unreleased labor data in a Truth Social post on Thursday night, claiming private-sector payrolls rose 654,000 in 2025. That suggests government job losses offset a meaningful portion of private-sector job growth, highlighting a growing divide between private and public sector hiring. For example: of the 50,000 new jobs added in December, only 2,000 came from the public sector.

What it means for markets

The labor market isn’t breaking—it’s stuck. The gap between hires and separations has narrowed to near zero, and with fewer workers switching jobs, wage growth slows, bargaining power weakens, and the churn that typically fuels broader economic momentum fades.

Markets are already adjusting. Traders largely pared back bets on an imminent interest-rate cut, as the lower-than-expected unemployment rate reduced pressure on the Federal Reserve to act quickly. For now, policymakers appear content to watch a cooling, but stable, labor market rather than rush to stimulate one that hasn’t yet cracked.—SY