Growth Without Jobs

The Federal Reserve is widely expected to hold rates steady at its January 27-28 meeting, with futures markets pricing a 95% probability of no change. Markets anticipate the first rate cut will likely arrive in June, with a 47% probability of one cut by then and cumulative odds of 72% for at least one cut. A second cut becomes more likely by September, with markets pricing 67% odds of at least two total cuts by year-end. This gradual easing path aligns with the Fed's December dot plot, which projected one to two cuts in 2026. Meanwhile, economic growth appears robust. The Atlanta Fed's GDPNow model stands at 5.1% for Q4 2025, down slightly from 5.4% earlier this week but still elevated compared to 2.7% from January 5. This surge was driven largely by volatile trade data. On inflation, all major measures continue cooling. Core PCE (the Fed's preferred gauge) stands at 2.64% year-over-year, still above the 2% target but trending downward. For households, this outlook suggests borrowing costs will remain elevated through mid-2026, with gradual relief potentially arriving in the second half of the year.

The U.S. economy added 50,000 jobs in December, marking the weakest annual job growth since 2003 outside of recession years. The unemployment rate (the percentage of people actively looking for work who can't find jobs) fell to 4.4%, while the broader U-6 measure (which includes discouraged workers and those in part-time jobs seeking full-time work) fell to 8.4%. Wages grew 3.8% over the past year, outpacing inflation and increasing workers' purchasing power. Restaurants and health care added jobs, while retailers cut positions.

Initial unemployment claims, which measure the number of Americans filing for jobless benefits for the first time, rose by 8,000 to 208,000 for the week ending January 3, 2026. The weekly increase notwithstanding, the four-week moving average dropped to 211,750, its lowest level since April 2024. This smoother measure reduces week-to-week volatility and suggests the underlying trend in layoffs remains historically low. For the week ending December 27, insured unemployment, representing people receiving ongoing benefits, increased by 56,000 to 1.914 million, while the insured unemployment rate held steady at 1.2 percent.¹

¹ U.S. Department of Labor (2026) Unemployment Insurance Weekly Claims, USDL 26-37-NAT. Available at: https://www.dol.gov/ui/data.pdf (Accessed: 8 January 2026).

U.S. employers announced 35,553 job cuts in December, the lowest monthly total since July 2024 and a positive signal heading into 2026. But the full-year picture tells a different story: companies announced over 1.2 million planned job cuts in 2025, the highest since the pandemic year of 2020 and a 58% increase from 2024. Government led all sectors with 308,167 announced cuts, driven primarily by federal workforce reductions. Technology topped private-sector layoff announcements at 154,445 as companies restructured around artificial intelligence.

What this means for workers: While December's slowdown and higher hiring plans offer near-term optimism, the job market remains challenging. Employers announced just 507,647 planned hires in 2025, the lowest since 2010, suggesting those seeking new positions may face longer searches.

U.S. job openings fell to 7.146 million in November 2025, down 303,000 from October and the lowest level since September 2024. This number came in well below market expectations of 7.60 million. The ratio of job openings to unemployed workers dropped to 0.91, meaning there are now fewer open positions than people looking for work, a reversal from the tight labor market of recent years. Restaurants, hotels, and transportation companies led the decline, while construction bucked the trend with 90,000 new openings. Hiring and layoffs held steady, suggesting employers are cautious but not cutting staff.

Private employers added 41,000 jobs in December, rebounding from November's revised loss of 29,000 positions. Education and health services (+39,000) and leisure and hospitality (+24,000) led hiring, while professional and business services (-29,000) and information (-12,000) continued shedding jobs. Small businesses recovered from November's weakness by adding 9,000 positions, though large corporations barely grew. For workers who stayed in their current roles, wages rose 4.4% year-over-year, matching November's pace. Those who switched employers saw stronger gains at 6.6%, a reminder that job-hopping still pays off.

The University of Michigan Consumer Sentiment Index (a measure of how confident Americans feel about the economy) rose to 54.0 in January 2026, marking its highest level since September 2025. This improvement reflects slightly better economic outlooks, particularly among lower-income households, though higher-income sentiment declined. The index remains nearly 25% below year-ago levels as Americans remain concerned about high prices and weakening job markets. While concerns about tariffs (taxes on imported goods) appear to be easing, households stay cautious about overall business conditions and employment prospects. Year-ahead inflation expectations held steady at 4.2%, well above historical norms.

The Institute for Supply Management (ISM) Services Purchasing Managers' Index (PMI), a monthly survey measuring activity across service businesses like restaurants, healthcare, and retail, rose to 54.4 in December. Any reading above 50 signals growth. This marks the highest reading of 2025, with all four key subindexes in expansion territory for the first time since February. For everyday households, the employment index turned positive after seven months of contraction, suggesting service employers are cautiously adding staff again. New orders jumped sharply, reflecting strong demand heading into year-end. Price pressures eased slightly, though costs continue rising faster than normal.

The Manufacturing Purchasing Managers' Index (PMI) from the Institute for Supply Management (ISM) fell to 47.9 in December 2025. This monthly survey measures factory activity, where readings below 50 signal contraction. December marked the tenth consecutive month of contraction and the lowest reading of the year. For families watching the job market, the employment component remained weak at 44.9, indicating manufacturing employment continued to contract, though at a slower pace than November. Production stayed barely positive at 51.0, while new orders improved slightly but remained in contraction territory. Perhaps most telling: 85% of manufacturing GDP contracted in December, up sharply from 58% in November.