Dive Brief:

• Hiring by U.S. employers last month fell below expectations, with payrolls expanding by just 50,000, the Bureau of Labor Statistics said Friday.
• The unemployment rate edged lower to 4.4% from 4.5% in November, the BLS reported, but still exceeds the 4% level in January 2025. The report cleared away some distortions caused by a lapse in data collection during the six-week federal government shutdown that began in October.
• “We continue to see an environment where companies are slow to hire and slow to fire,” Art Hogan, chief market strategist at B. Riley Wealth, said in an email.

Dive Insight:

Concerned about labor market fragility, Federal Reserve policymakers cut interest rates by a quarter point three times between September and December. The federal funds rate currently ranges between 3.5% and 3.75%.

Following release of the employment data on Friday, traders in interest rate futures raised the odds that the Fed will leave the main rate unchanged at a Jan. 27-28 policy meeting to 95% from 88.9%, according to the CME FedWatch tool.

Two policymakers dissented against the cut in the federal funds rate last month while another, Fed Governor Stephen Miran, dissented in favor of a bigger reduction.

“I’m looking for about a point and a half of cuts [in 2026]. A lot of that is driven by my view of inflation,” Miran said Thursday, adding that “underlying inflation is running within noise of our target” of 2%.

“There’s about a million Americans who don’t have jobs, who could have jobs without causing unwanted inflation,” Miran said in a Bloomberg Television interview, restating his concerns about weakness in the labor market.

Public and private sector employers announced 1.2 million job cuts last year, an increase of 58% compared with 2024 levels, outplacement firm Challenger, Gray & Christmas said Thursday in a report. The Department of Government Efficiency was the leading force for the layoffs.

“Overall, we saw a significant increase in job-cut announcements, at a level that is well above average for any type of normal year,” Andy Challenger, chief revenue officer at the Chicago, Illinois-based outplacement firm, said in an interview.

Sweeping tariffs imposed by President Donald Trump last year weighed on labor demand, and curbs on immigration reduced labor supply, according to a Dec. 4 report by global investment management firm Pacific Investment Management Company.

“Many companies accelerated artificial intelligence (AI) deployment and investment while reassessing or consolidating labor forces, mainly in an effort to manage tariff-related costs,” PIMCO economist Tiffany Wilding said in the report.

Fiscal stimulus this year under the One Big Beautiful Bill Act will likely spur economic growth and stabilize the labor market, Wilding said.

Deloitte analysts expect job growth to turn “modestly negative” during the first quarter of 2026 as high tariffs, weaker immigration and elevated interest rates restrain demand for labor.

Growth in federal government employment will likely slow the most this year, but private sector numbers are expected to moderate as well, according to a Dec. 19 economic forecast by Deloitte.

The government led all industries in job reductions last year, primarily at the federal level, with a total of 308,167 cuts, a 703% spike compared with 2024, according to the Challenger report. Federal layoffs significantly fell after the first quarter.

DOGE actions were responsible for 293,753 layoffs in 2025, including direct reductions to the federal workforce and its contractors. An additional 20,976 cuts have been attributed to DOGE “downstream impact,” reflecting the loss of federal funding to private and nonprofit entities, the report said.

The technology industry led private-sector layoffs, with a total of 154,445 job cuts announced last year, a 15.3% increase compared with 2024.

AI disruption spurred many layoffs, along with continued efforts to reduce payrolls following a hiring spree in 2020 aimed at meeting high demand for online services during the pandemic, Challenger said.

Warehousing and retail, which also accelerated hiring during the pandemic to meet higher demand for e-commerce, were in second and third place, respectively, as the private sector’s biggest job cutters last year. Retail’s 92,989 job cuts in 2025 represented a 123% yearly increase, while warehousing had a 317% jump with 95,317 layoffs.

Like the technology industry, warehousing and retail “seem to be coming back to reality now that we’re normalizing as an economy and coming out of that COVID period,” Challenger told CFO Dive.

The huge spike in warehousing occurred as the sector grappled with automation, changing consumer behavior and supply chain glitches, according to the Challenger report. Similarly, retailers contended with more cautious spending by consumers, tariff uncertainty and higher prices.

After DOGE actions, the top drivers of layoffs last year were market/economic conditions; store, unit, or department closings; restructurings; cost-cutting and AI.

The year closed with the fewest announced layoff plans all year, according to the report. U.S. employers announced 35,553 job cuts in December, down 50% from the 71,321 job cuts announced in November.

December’s total is the lowest monthly figure since 25,885 cuts were announced in July 2024.

“It’s almost always low in December, but this was 8% lower than what we saw in the prior year at the same time,” Challenger said. “While it’s potentially a good sign, I wouldn’t read too much into it. It’s just one month, and companies are typically hesitant to announce job cuts during the holidays.”