As Americans ring in the new year with hopes of economic prosperity, JPMorgan's economists are sounding a cautionary note. The first half of 2026 will deliver "uncomfortably slow" job growth, according to the bank's latest forecast, with unemployment expected to peak at 4.5% before conditions improve in the latter part of the year.

The Forecast: A Year of Two Halves

JPMorgan's economic team, led by chief U.S. economist Michael Feroli, sees 2026 as a tale of two distinct periods. The first six months will be characterized by sluggish hiring as businesses continue to grapple with policy uncertainty, particularly around tariffs and trade. The second half, however, could bring relief as policy stabilizes and additional fiscal stimulus takes effect.

The bank projects overall GDP growth of 1.8% for 2026, a meaningful slowdown from recent years. Perhaps more concerning, JPMorgan assigns a one-in-three probability of recession—odds that investors should not take lightly.

"Both long-term and short-term business planning has remained difficult, and layoff and hiring rates have been low."

— Michael Feroli, Chief U.S. Economist, JPMorgan

Why Employers Aren't Hiring

The jobs market paradox of 2025 carried directly into 2026: companies aren't laying off workers en masse, but they're not hiring either. This "low hire, low fire" environment reflects deep uncertainty about the economic landscape.

Several factors are contributing to employer hesitancy:

  • Tariff unpredictability: The on-again, off-again nature of trade policy has made it impossible for companies to confidently plan inventory, supply chains, and staffing
  • Immigration policy shifts: Changes to immigration have affected labor availability in key sectors
  • Cost pressures: Persistent inflation has increased the cost of each new hire, making employers more selective
  • Demand uncertainty: Consumer spending patterns remain difficult to predict, leading companies to err on the side of caution

The Unemployment Trajectory

The unemployment rate ended 2025 at approximately 4.4%, up from lows near 3.5% in early 2023. JPMorgan expects this upward drift to continue, with unemployment touching 4.5% in the early months of 2026.

While 4.5% unemployment would still be considered relatively low by historical standards—well below the levels seen during the 2008-2009 financial crisis or the 2020 pandemic—the direction of travel is concerning. Each percentage point increase represents hundreds of thousands of American workers unable to find jobs.

Labor Market by the Numbers

Current labor market data reveals several concerning trends:

  • Long-term unemployed (jobless for 27+ weeks): 1.9 million workers, representing 24.3% of all unemployed
  • Labor force participation rate: 62.5%, largely unchanged from September
  • Employment-population ratio: 59.6%
  • Weekly jobless claims: Holding steady near 200,000

The Inflation Complication

Adding to the Federal Reserve's dilemma, inflation refuses to fully cooperate. JPMorgan projects inflation will remain sticky at 2.7% throughout 2026—well above the Fed's 2% target. This creates a difficult balancing act for monetary policymakers who must choose between supporting employment and fighting inflation.

The Conference Board's forecast is even more concerning, projecting CPI growth could peak slightly above 3% in the first half of 2026 before easing to 2.3% by year-end. This tariff-induced inflation spike could force the Fed to maintain higher rates for longer, further weighing on job creation.

When Relief May Come

JPMorgan's economists do see light at the end of the tunnel. The second half of 2026 is expected to bring improvement as several positive factors converge:

Policy clarity: As the Trump administration's trade and tariff policies become more established, businesses can begin planning with greater confidence. "Companies won't rush to hire—they're still spooked by recent changes in trade and immigration policy and want stability before adding to payrolls," the bank noted.

Tax cuts: Expected fiscal stimulus from new tax legislation could boost business investment and hiring.

Fed rate cuts: Additional monetary easing from the Federal Reserve could lower borrowing costs and encourage expansion.

Infrastructure spending: Continued rollout of infrastructure investment from previous legislation should create jobs in construction and related sectors.

Mark Zandi's Contrarian View

Not everyone agrees with JPMorgan's relatively measured outlook. Moody's Analytics chief economist Mark Zandi has taken a more aggressive stance, predicting the Federal Reserve will surprise markets with three quarter-point rate cuts in the first half of 2026 alone.

Zandi argues that labor market weakness will be more pronounced than consensus expects, and that political pressure on the Fed will intensify as midterm elections approach. He also notes that Fed independence "will steadily erode as the president appoints more members to the Federal Open Market Committee, including the Fed chair in May."

What This Means for Workers and Investors

For workers, the message is clear: job security will remain paramount in early 2026. Those considering career changes or negotiations for higher pay may want to wait until the labor market stabilizes in the second half of the year.

For investors, the labor market outlook has several implications:

  • Consumer discretionary stocks may face headwinds as employment uncertainty weighs on spending
  • Defensive sectors like healthcare and utilities could outperform
  • Small-cap stocks with significant domestic labor exposure may underperform
  • Rate-sensitive assets could benefit if the Fed proves more dovish than currently expected

The Bottom Line

JPMorgan's forecast for "uncomfortably slow" job growth in the first half of 2026 serves as a reality check for those hoping for a seamless economic expansion. While a full recession remains more unlikely than likely, the one-in-three odds are high enough to warrant caution.

The labor market that emerges from this challenging period will likely look different than what we've grown accustomed to. Lower turnover, more selective hiring, and continued pressure on workers to accept less favorable terms may become the new normal—at least until policy uncertainty finally clears and businesses feel confident enough to invest in growth once again.

For now, patience is the watchword. The second half of 2026 may indeed bring the relief JPMorgan anticipates, but getting there could prove more challenging than many expect.