Don't bet on lots of hiring and new jobs in 2026 - or lots of layoffs, either

By Jeffry Bartash Labor market has cooled off, but it's not in a deep freeze Has the U.S. economy hit a fork in the road? Jobs are less plentiful and unemployment has risen. Looking for work? The U.S. jobs market took a sharp turn for the worse in 2025, and it doesn't look like hiring will catch fire in the new year. Some analysts even wonder if the economy is morphing into a so-called jobless expansion - in other words, an economy that is growing but adding very few, if any, net jobs. "Job growth in 2026 is likely to be notably more subdued than in 2025 and the preceding expansion years," said Scott Clemons, chief investment strategist at Brown Brothers Harriman. Hiring shift The latest, if tardy, look at the labor market wasn't so bad at first glance. The November jobs report, delayed by the government shutdown, showed the U.S. added an average of 75,000 private-sector jobs a month from September through November. That's a big improvement on the average 13,000 increase from June to August. The unemployment rate did move up to a four-year high of 4.6%, but economists say that could be just a temporary increase. They cited distortions caused by the shutdown, as well as the deferred resignation of 160,000 or so federal employees who were offered buyouts in the spring. "Unemployment is rising, but the labor market isn't breaking," said Matthew Martin, senior U.S. economist at Oxford Economics. Indeed, even at 4.6%, the jobless rate is still extremely low historically. And the U.S. has never had a recession without the jobless rate breaching at least 5%. There's "no signs of a sharp deterioration at all" in the labor market, New York Federal Reserve President John Williams said Friday. Low and slow Now, the bad news. The number of new private-sector jobs created in 2025 - 786,000 as of November - is the smallest in 16 years if the COVID-19 pandemic is omitted. Job creation has been two to three times higher in every other year. Not only that, but almost all the new jobs in 2025 have been created in just two areas of the economy: healthcare and social services such as child and elderly care. Almost no other industry is adding jobs. That's very unusual. Finally, the rate of hiring might even be falling below the so-called break-even rate - that is, the number of new jobs the economy has to create to absorb all the new entrants into the labor force. These include school graduates, immigrants, returning mothers and retirees looking for another paycheck. When hiring falls below the break-even rate, the unemployment rate tends to rise and sends negative signals to the public about the economy. Breaking even? Is hiring now below the break-even rate? Not necessarily. For one thing, the break-even rate is a moving target. Most Wall Street and Federal Reserve estimates peg it at around 40,000 to 60,000. If so, all the economy has to do is produce 60,000 or so new jobs a month to keep the unemployment rate unchanged. But Americans aren't convinced it's going to happen: A large majority of people believe the unemployment rate will climb further in 2026, according to the University of Michigan's December survey of consumer sentiment. There are many reasons to be skeptical about the jobs market. Many companies overhired after the pandemic, for one thing. More recently, high tariffs and other White House actions have increased uncertainty among businesses. Why hire if you don't know how much the tariffs will cost or how much they will hurt sales? A crackdown on immigration, meanwhile, has reduced the pool of available workers. Even if businesses want to hire, the pickings are slimmer, especially in low-skill occupations at hotels and restaurants. Finally, the rising use of artificial intelligence might be depressing the need for more employees. The future of jobs Not every forecast is so gloomy, though. Some analysts say an improving economy in 2026 will lead to stable and perhaps even stronger job creation. How so? They point to lower taxes and less regulation enacted by the Trump White House. Tariffs could also be rolled back or eased, they note, giving businesses more clarity on whether to hire. The Federal Reserve, for its part, has cut its key U.S. interest rate three times since September to try to heat up a chilly labor market - and more cuts are likely in 2026. Whether the pessimistic or optimistic view is right, the only thing for sure is this: The days of the U.S. adding 2 million new jobs a year aren't coming back anytime soon. From 2011 to 2024, the U.S. created roughly 2 million jobs or more in every year but one: the pandemic outbreak in 2020. -Jeffry Bartash This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal. (END) Dow Jones Newswires 12-20-25 0900ET