Where Does the Labor Market Go From Here?
For the past few years, the U.S. labor market has been in a state of gradual decline. In 2023, the U.S. economy added a robust 4.6 million net new jobs. In 2024, the number of new jobs added fell to four million. Last year, just 584,000 new jobs were added, or roughly 49,000 per month. This was the lowest monthly average gain since 2020. Last year, the national unemployment rate also jumped from 3.7% in January to 4.4% in December.
Despite the anemic pace of job growth and a rising unemployment rate, it isn’t a doom-and-gloom landscape for the labor market. Even at 4.4%, the current unemployment rate is well below the 25-year average of 6.4%. However, a closer look at the data does raise some cautionary flags.
Of the 11 economic sectors tracked by the U.S. Department of Labor, less than half (5 of 11) posted job gains in 2025. The biggest producer of those gains was the Education & Health Services sector, which added 709,000 new jobs last year. That means the other 10 sectors of the economy produced a combined net loss of 125,000 jobs.
According to consulting firm Challenger, Gray & Christmas, employers announced more than 1.2 million job cuts in 2025. That was 58% higher than 2024 and the highest number of reported cuts since 2020 (2.3 million).
The sector with the most job cuts last year was Government. In 2025, government agencies announced 308,167 job cuts, primarily at the federal level. This represents more than 25% of all job cuts reported last year. At the start of his second term, President Trump quickly established the Department of Government Efficiency, or DOGE. Its primary task was to reduce the size of the federal government while addressing waste, fraud and inefficiencies within federal government operations.
Likewise, employers also cut back on their hiring. Last year, employers announced just 507,647 planned hires. This was down 34% from the 769,953 reported in 2024 and is the lowest annual total since 2010.
It’s understandable that employers have expressed both uncertainty and anxiety over the state of their workforce. They currently face rising labor costs, high interest rates, global trade and tariff disputes and the evolving transition towards AI, among many others. But what’s the forecast for the labor market in 2026?
At his press conference on Wednesday, Jan. 28, Fed Chair Jerome Powell provided a more upbeat tone on the labor market than some of his previous comments. Powell admits job gains have remained slow but suggests the labor market should show signs of “stabilizing”. This is due, in large part, on the back of an economy he described as “expanding at a solid pace.” This year, the Federal Reserve sees the unemployment rate remaining steady at 4.4% before gradually falling to 4.2% in 2027. For now, at least, the Fed believes the worst is behind us.
Mark M. Grywacheski, Investment Advisor
Quad Cities Investment Group is a Registered Investment Adviser.
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