Unemployment

The US labor market is clearly showing signs of slowing down. Not collapsing. But slowing. Job creation is moving at a snail’s pace, businesses are becoming cautious, and overall participation in the labor force is declining. Even though the broader economy is still moving in a positive direction, the labor market itself appears to be hitting the brakes.

Many analysts see this as a natural development after the overheating of the 2021–2023 period, when hiring was running at breakneck speed.

Let’s break it down step by step.

NEW UNEMPLOYMENT CLAIMS

Starting with initial jobless claims for the week ending January 3, these increased by 8,000 to reach 208,000. Slightly below expectations, but higher than the previous week, which was revised modestly upward.

The four-week moving average fell to 211,750, the lowest level since April 2024. This suggests that despite the small uptick in the most recent week, the overall trend in layoffs remains firmly low.

However, continuing claims rose to 1.914 million, higher than the prior week, while the insured unemployment rate held steady at 1.2%. This indicates that some workers are finding it harder to reenter the labor market.

NEW JOB CREATION

The headline number, nonfarm payrolls, increased by 50,000 in December. Slightly below analyst expectations of +55,000, and far lower than the 100,000–200,000 monthly gains seen in previous years.

As if that were not enough, October and November were revised downward by a combined 76,000 jobs. October actually closed with a negative figure of -173,000.

Most new jobs were created in leisure and hospitality, healthcare, and social assistance. In contrast, retail trade lost 25,000 jobs, mainly due to layoffs at warehouse clubs and supercenters.

Trump, meanwhile, could not resist weighing in. Twelve hours before the official data release, he posted a chart on Truth Social showing that the private sector added 654,000 jobs in 2025.

He did not disclose the exact breakdown, but he sent a clear signal. This led many analysts and investors to interpret the post as an early hint of how the official report would look.

Naturally, this sparked criticism about protocol violations and potential leaks of unpublished economic data. Either way, once again, Trump made his presence felt.

UNEMPLOYMENT

The unemployment rate fell to 4.4%, lower than the 4.6% forecast. However, labor force participation declined to 62.4% from 62.5%, indicating that fewer Americans are actively seeking work.

This means the drop in unemployment does not necessarily reflect more jobs being created. It may simply reflect fewer people participating in the labor market.

At the same time, average hourly earnings rose by 0.3% month over month and 3.8% year over year. Slightly better than expected, suggesting wages are still rising, but not at a pace that threatens inflation.

WHAT DOES ALL THIS MEAN

Jan Hatzius of Goldman Sachs was blunt: “This was not a good report.” He noted that average monthly job creation over the past six months is just 15,000, a figure that points to a serious slowdown. He also warned that future revisions could push the current numbers even lower.

Still, he emphasized that the decline in unemployment and the contained pace of wage growth could help the Federal Reserve remain calm and maintain a patient, accommodative stance.

Tom Barkin of the Richmond Fed spoke about a “delicate balance” between weak labor demand and constrained labor supply. He pointed out that businesses are hesitant to hire, partly because of productivity gains.

The Fed wants to see a weaker labor market so it can safely cut interest rates without triggering a new wave of inflation.

Today’s data therefore give the Fed room to wait and make decisions without immediate pressure.

Markets, for their part, are already pricing in a 95% probability that there will be no change in interest rates at this month’s meeting. Attention now shifts to inflation data, specifically the CPI, which will determine the next move.