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

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.