U.S. labor market raises red flags on Wall Street

The U.S. labor market closed 2025 with clear signs of weakening, as evidenced by the latest employment data released in December.

In the latest episode of “Noticias Sobre Ruedas,” journalist and market specialist Julián Yosovitch offers an overview of the U.S. labor market in 2025 and the outlook heading into 2026.

According to Yosovitch, the U.S. labor market closed 2025 with clear signs of weakening, as evidenced by the latest employment data released in December. Nonfarm payrolls increased by just 50,000 jobs, below both the revised November figure (56,000) and market expectations (73,000).

As a result, 2025 recorded an annual increase of only 584,000 jobs, making it the worst year without a recession since 2003. This slowdown validates concerns expressed by the Federal Reserve (Fed) and economists regarding the health of the labor market, at a time when the economy continues to grow but hiring is losing momentum.

The U.S. labor market in 2025: more unemployment and layoffs

In 2025, the unemployment rate edged down slightly to 4.4%, compared with the expected 4.5%, although it remains elevated relative to the 3.4% low reached in early 2023. Throughout the year, companies announced more than 1.2 million layoffs, a 58% year-over-year increase and the highest level since the 2020 pandemic.

Although 10,496 new hires were announced in December, representing an improvement both month over month and year over year, the final quarter of 2025 was the worst for employment since 2008, according to Yosovitch’s data. In addition, weekly initial jobless claims remained stable, with occasional spikes.

Private-sector employment showed a modest recovery in December, with 41,000 new jobs, reversing the loss of 29,000 jobs in November, though still below the 48,000 expected.

At the same time, average hourly wages rose 0.3% month over month, in line with expectations, but 3.8% year over year, exceeding forecasts and reaching the highest level in six months. This data reignited fears of a scenario involving persistent inflation alongside a weak labor market, a particularly challenging combination for the Fed.

Following the release of the employment data, stocks rose, the dollar fell, and bond yields declined, reflecting increased expectations of monetary easing. The market is pricing in no rate changes in January (95% probability) and is betting on the first rate cut in June 2026, with a 48% probability, followed by a second cut in September. Overall, a 50–basis-point reduction is projected for the year.

A Fed under political pressure

The outlook is further complicated by political factors. Jerome Powell’s term as Fed chair expires in May, and Donald Trump has already signaled his intention to replace him with someone holding a more dovish stance. This political pressure has unsettled Wall Street, where concerns are growing over a potential loss of central bank independence.

The minutes of the December meeting revealed significant internal divisions: the 25–basis-point rate cut was approved by a 9–3 vote, the largest dissent since 2019. Many officials voiced doubts about future cuts if inflation does not show a clear downward trend.

Despite these tensions, markets began 2026 on a positive note: in the first week of the year, the Dow Jones rose 2.8%, the S&P 500 gained 1.7%, and the Nasdaq advanced 1.6%. This performance adds to a strong close to 2025, although investors remain focused on labor market developments, inflation, and the Fed’s political trajectory.

More details are available in the weekly episode of “Noticias Sobre Ruedas,” a collaboration between Julián Yosovitch and Saint George Insurance Brokerage Inc., available on Spotify.