We have made the case for some time that the American economy needs to generate only about 50,000 jobs a month to keep labor conditions stable.
The December jobs report reaffirmed that the economy remains in a no-fire, slow-hire state as 50,000 new jobs were created and the unemployment rate declined to 4.4% from a revised November estimate of 4.5%.
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The labor force participation rate for those in their prime working years of 25 to 54 stood at 89.5% for men and 78.1% for women.
While these numbers will do nothing to quell the disquiet among the American public over the job market, it underscores that employment remains on solid footing even as job creation remains well below the level that would have been acceptable only a short time ago.
U.S. job creation remained tepid as firms outside of private education and health care added only 9,000 of the 50,000 new jobs in December. In addition, a net downward revision of 76,000 jobs to the previous two months’ data now points to a three-month average job loss of 22,333 since October.
It is important to note that we will get benchmark revisions in the coming months to both the establishment and household surveys that make up the Bureau of Labor Statistics’ monthly jobs estimate.
At best, one should anticipate a large decline in monthly job gains for the months covered by the benchmark, which will materially alter perceptions of monthly job gains and the unemployment rate.
In our economic outlook for 2026, we forecast an increase on average of 50,000 jobs per month, which is in line with the 49,000 on average created in 2025, and we see no reason to change that estimate.
Only 584,000 jobs were created in 2025, which points to a potential decoupling of hiring from growth in the American economy.
Rising productivity
One factor driving this new dynamic is the rise in productivity. The economy can grow without needing to produce as many jobs as in the past. As firms learn they can become more efficient without as many workers, one should expect margins and profits to improve.
We take time here to note that the increase in productivity that started in 2023 has nothing to do with artificial intelligence. It is simply a function of investment in capital expenditures during the machine learning era that preceded what we think is a coming productivity boom driven by artificial intelligence.
This change will prove challenging to explain to the American public.
It is best we start that discussion now around embracing change, engaging in a lifetime of learning, and acquiring skills that integrate AI and technical skills into our workplace and our lives.
Policy implications
The decline in hours worked of 0.3% overall and 0.5% in manufacturing does not bode well for spending by down-market households, which may create a bit of a more intense holiday spending hangover than usual.
The Federal Reserve will observe that softness along with signs that hiring overall is stalling, leading central bank officials to keep their options open on rate cuts in the first half.
We do not expect a January rate cut. Depending on the size of those benchmark revisions to the jobs data, we expect that the March meeting of the Federal Open Market Committee will be the next potential opportunity for a rate cut.
We expect two 25 basis-point reductions this year, with the June meeting following the appointment of a new Fed chair the most likely site of one of those cuts.
The data
Hiring was primarily a function of the net increase of 41,000 in private education and health care as well as an increase of 47,000 in leisure and hospitality, 7,000 in finance, and 13,000 in government.
Outside of those industries, hiring declined across the economy.
Hiring in goods-producing industries dropped by 21,000 with losses of 8,000 in manufacturing and 11,000 in construction. Trade and transport dropped by 33,000 and retail trade by 25,000.
Temporary hiring dropped by 6,000 and professional business services fell by 9,000.
While average hourly earnings increased by 0.3% on the month and by 3.8% from a year ago, that was primarily a function in a decline of hours worked overall and in the manufacturing sector. One should expect wage growth to slow notably.
As the median duration of unemployment has slumped to 11.1 weeks, the number of people working part time for economic reasons is 980,000 from one year ago.
While the no fire, slow hire narrative around the labor market remains in place, it is equally clear that labor mobility has stalled and opportunities to move into higher-paying positions will remain constrained for some time.
The takeaway
The U.S. corporate sector is in a sustained hiring pause as it adjusts its labor force following an extended period of labor hoarding.
More important, as firms continue to ramp up spending on technology, they are taking time to ascertain the return on investment.
Recent productivity gains imply strong returns, and as firms find they can produce more with less labor, one should anticipate that monthly gains at or near 50,000 per month will be the norm in the near term.
