Next Friday, January 9, the Bureau of Labor Statistics will release the December employment report—the final piece of a puzzle that has been assembling throughout 2025. If economists' projections hold, the data will confirm what many have suspected: 2025 was the weakest year for job creation since the aftermath of the 2008 financial crisis.

The median forecast from a Bloomberg survey projects approximately 60,000 jobs were added in December. That would bring the full-year 2025 average to roughly 50,000 jobs per month—a stark decline from the robust hiring that characterized the post-pandemic recovery and far below the approximately 180,000 monthly average that prevailed before COVID-19.

The Numbers That Tell the Story

The 2025 labor market didn't collapse—it slowly cooled to a temperature that has economists debating whether the patient is healthy or heading toward trouble. Key metrics illustrate the trajectory:

  • Monthly payroll growth: Averaged 50,000 jobs per month in 2025, with a particularly weak stretch from June through August averaging just 29,000.
  • Unemployment rate: Rose to 4.6% in November, a four-year high. The delayed release (thanks to the government shutdown) caught many observers off guard.
  • Labor force participation: Has edged down as workers leave the labor force, particularly older workers who had returned during the pandemic recovery.
  • Wage growth: Has moderated to approximately 3.5% year-over-year, down from peaks above 5%.

Taken together, the picture is one of a labor market that is no longer generating momentum—but isn't yet in free fall.

What Drove the Slowdown

Multiple factors contributed to 2025's weak hiring environment:

Federal workforce reductions: The Trump administration's efforts to reduce government employment, initially led by Elon Musk's DOGE initiative, resulted in 271,000 fewer federal workers by year-end—a 9% decline. While private-sector hiring partially offset these losses, government jobs typically pay well and support local economies.

Immigration policy changes: Stricter visa policies and increased deportations reduced the available labor supply, particularly in sectors like construction, hospitality, and agriculture. JPMorgan's Michael Feroli cited "the labor supply shrinking from deportations, an aging population and fewer visas for workers and students" as key factors.

AI-driven investment shifts: Corporate capital spending increasingly flowed to technology, software, and data centers rather than hiring. The AI boom created relatively few jobs while potentially reducing demand for workers in affected occupations.

Interest rate effects: While the Federal Reserve cut rates three times in 2025, borrowing costs remained elevated by historical standards, dampening hiring in rate-sensitive sectors like housing and commercial real estate.

What the Fed Is Thinking

The employment picture factors heavily into Federal Reserve decision-making. The central bank's dual mandate—price stability and maximum employment—requires balancing inflation concerns against labor market health.

With inflation still above the 2% target and the labor market cooling but not crashing, the Fed has signaled a pause in rate cuts. Most traders expect the Fed to hold steady at its January 28 meeting, with expectations for further cuts pushed into the second half of 2026.

"The first half of 2026 will likely deliver uncomfortably slow growth in the labor market, with unemployment peaking at 4.5% in early 2026," according to JPMorgan's latest forecast. The investment bank assigns one-in-three odds of a recession.

The Second-Half Optimism

Despite the concerning near-term trajectory, most forecasters expect conditions to improve later in the year. Several factors support this optimism:

  • Tariff policy stabilization: The uncertainty surrounding trade policy that dampened business confidence throughout 2025 may ease as firms adjust to the new regime.
  • Tax cuts: Provisions from Trump's "One Big Beautiful Bill Act" begin taking effect, potentially boosting consumer spending and business investment.
  • Additional rate cuts: If inflation continues to moderate, the Fed may resume easing in the second half, providing tailwinds for hiring.

JPMorgan projects GDP growth of 1.8% for 2026—sluggish but positive—with the labor market reversing course in the second half.

What to Watch in Friday's Report

Beyond the headline jobs number, several components of the December report deserve close attention:

  • Unemployment rate: Another uptick toward 4.7% would heighten recession concerns. A hold or decline would provide some reassurance.
  • Wage growth: Continued moderation supports the Fed's inflation fight but may signal weakening worker bargaining power.
  • Hours worked: Declines in average weekly hours often precede outright layoffs, as employers reduce hours before cutting headcount.
  • Sector composition: The split between goods-producing and service-sector jobs, and between public and private employment, reveals which parts of the economy are healthy and which are struggling.

What It Means for Investors

The labor market is the economy's center of gravity. Consumer spending, which drives roughly 70% of GDP, depends on people having jobs and confidence about keeping them. A weakening employment picture would eventually feed through to corporate earnings, credit quality, and stock valuations.

For now, the market appears to be pricing in the "soft landing" scenario—a slowing but not collapsing economy that allows the Fed to gradually normalize rates without triggering recession. Friday's jobs report will either reinforce that narrative or call it into question.

The Bottom Line

The December employment report arrives at a critical juncture for markets and the economy. If the data confirms that 2025 was the weakest hiring year since 2009, investors will need to grapple with what that means for 2026. A labor market that is merely cooling may be manageable. A labor market that is accelerating toward weakness would be a different story entirely.