Last week’s jobs report wasn’t a “good” report, but it wasn’t a collapse either. Payrolls are still growing modestly, and the unemployment rate hasn’t spiked. Even so, the underlying message is clear: the labor market has lost momentum. That distinction matters with the Federal Reserve’s next rate decision just two weeks away.
What We Learned From the Jobs Report
Two features of the report deserve more attention than the headline payroll number.
First, job growth remains narrow and uneven.
Hiring rates are low, employment gains lack breadth, and fewer industries are adding workers. That’s not what a healthy expansion looks like. It’s consistent with an economy where firms are cautious – slowing hiring rather than cutting aggressively.
Second, labor supply now exceeds labor demand.
There are roughly 7.5 million people actively looking for work, up by 583,000 over the course of 2025. At the same time, job openings have fallen to around 7.1 million. That crossover matters. When job openings exceed unemployed workers, firms compete aggressively for labor. When unemployed workers outnumber openings, hiring slows and bargaining power shifts back toward employers.
That shift has real consequences. Slower bargaining power translates into weaker real wage growth – and in some cases outright declines. Even without a surge in layoffs, that dynamic alone can cool consumer spending.
Third, hires and separations confirm a “low-hire, low-fire” environment.
The hires rate remains near cycle lows, signaling limited appetite to add workers. At the same time, layoffs and discharges remain subdued, and total separations are historically low. Employers are holding onto the workers they have, but they’re reluctant to expand payrolls.
That combination – weak hiring alongside restrained layoffs – is the hallmark of a labor market that is stuck rather than breaking. Historically, this type of labor hoarding tends to appear late in the business cycle. Firms initially preserve headcount because hiring was costly and labor remains hard to replace, but when demand fails to re-accelerate, this restraint often precedes sharper pullbacks in hiring, investment and, eventually, employment.
Finally, revisions matter.
October and November payrolls were revised lower, meaning the labor market entered year-end weaker than initially reported. Momentum was already fading before the calendar turned.
Put simply: things aren’t getting worse – but they aren’t getting better either.
In fact, 2025 was a notably weak year for job creation. The U.S. added just 584,000 net jobs, a 71% decline from the 2.0 million jobs added in 2024. Excluding the pandemic year, this was the weakest year for job growth since the aftermath of the Great Financial Crisis.
The takeaway is not that the labor market is collapsing – it’s that it is losing forward motion.
Why This Week’s Data Matters
This week’s data calendar is unusually dense – and unusually important.
The main event is the release of delayed CPI and PPI inflation reports, which will help determine whether price pressures are easing enough to allow further policy normalization.
We’ll also get the November retail sales report, which will offer an early read on whether softer real wage growth was already weighing on household spending.
On the housing side, both new home sales and existing home sales are expected to have declined at the end of the year.
For all of 2025, existing home sales are expected to come in roughly in line with 2024 levels – marking another year of historically weak housing activity. The market has now spent multiple years bouncing along the bottom, constrained by affordability pressures.
Looking ahead, Zillow forecasts a modest rebound in existing home sales to around 4.2 million in 2026, as affordability gradually improves. Slower home price growth, easing mortgage rates, and income growth outpacing housing costs should help bring more buyers and sellers back into the market.
A fragile labor market complicates that outlook. When job prospects feel uncertain, renters are more likely to stay put, fewer first-time buyers enter the market, and some would-be sellers delay listing their homes. Even modest labor market softening can therefore restrain housing turnover, limiting how quickly activity can recover.
What This Means for Policy Right Now
With inflation still above target and the labor market no longer deteriorating meaningfully, the Federal Reserve is likely to hold rates steady at its January meeting. Eighteen days out from the next FOMC decision, market pricing implies only about a 5% probability of a rate cut.
For policymakers, the current data argue for patience: growth is slowing but not collapsing, and inflation risks still dominate. Until either inflation cools more convincingly or labor market conditions weaken further, policy is likely to remain on hold.
