The US labor market ground to a halt in 2025. The risk in 2026 is that it ‘cracks.’
Americans looking for work in 2025 face a challenging environment. And 2026 may not be much better.
As of September, the latest month for which we have official data, the unemployment rate stood at 4.4%, which is low by historical standards but the highest level since October 2021. University of Michigan showed He stated that as of November, the majority of consumers expected unemployment to increase next year.
While layoffs began to increase slowly, employment growth remained weak. Hiring rate remains low seen early in the pandemic and after the Great Recession.
A report last month From Indeed Hiring Lab He stated that with the currently frozen workforce on the table, “the question will not be whether the market will thaw, but whether it will crack.”
Healthcare, for example, represented 47.5% of all job growth recorded in 2025 as of August. A significant downturn in this sector alone, without improvement in others, could put further pressure on the labor market.
“The most likely outcome is not a dramatic break from current conditions but an extension of today’s ‘low-hiring, low-fire’ environment, where both employers and job seekers face a slower, more selective market,” Indeed Hiring Lab experts said.
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The November jobs report is scheduled to be released on Dec. 16, and December data is through Jan. 9, 2026, as the government works through a backlog of data from the 43-day government shutdown that ended last month.
The Federal Reserve this week released forecasts showing officials’ forecasts unemployment It will peak at 4.5% this year and then drop to 4.4% by the end of 2026. On Wednesday, Fed Chairman Jerome Powell stated that the labor market was “under pressure” and that “job creation may actually be negative.”
“Now the supply of workers has dropped quite a bit, so the unemployment rate hasn’t changed much,” Powell said. “But, you know, this is a labor market with significant downside risks. People care a lot about that.”
Federal Reserve Chairman Jerome Powell speaks at the Federal Reserve in Washington, D.C., on December 10, 2025 (AP Photo/Jacquelyn Martin) ·RELATED PRESS
The low hiring and low fever labor market that is difficult for job seekers seems likely to continue.
“It concerns me that we’re starting the year weaker than the year before,” said Elise Gould, senior economist at the Economic Policy Institute. “Do I think there’s necessarily a recession coming? I don’t know, but I have concerns, and it’s important to remember that even a mild recession can hit historically disadvantaged groups hard.”
Conditions were especially harsh for young Americans entering the job market.
National Association of Colleges and Employers, questionnaire The survey, conducted among 183 employers between August 7 and September 22, found that just over half of those surveyed rated the market for 2026 college graduates as bad or fair, comparable to what they felt during the height of the pandemic.
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When it comes to job prospects for 2026, the majority of employers said they plan to maintain current headcount; This is a continuation of the conditions that have dogged young job seekers who have filled out hundreds of applications this year and received almost no response.
Companies are “projecting an increase in hiring of approximately 1.6% for the class of 2026,” said Mary Gatta, director of research and public policy at NACE, “which means it’s essentially flat from last year’s class.”
Gatta said college students who want to stay competitive should try to improve their skills, get internships and look for jobs on campus. AI knowledge in particular can be valuable, although 14% of employers surveyed by NACE said they are currently discussing replacing entry-level workers with technology.
“We found in our survey that people are talking about increasing jobs, not changing them,” Gatta said.
Cal State LA students graduate at a graduation ceremony held at the Shrine Auditorium in Los Angeles on May 21, 2025. The college has graduated more than 5,500 students in multiple commencement ceremonies. (Sarah Reingewirtz/MediaNews Group/Los Angeles Daily News via Getty Images) ·MediaNews Group/Los Angeles Daily News via Getty Images via Getty Images
Still, Ayşegül Şahin, professor of economics and public relations at Princeton University, said that although the current perception of the labor market is negative, Fewer jobs may be needed due to reduced immigrationThis ensures that the unemployment rate remains stable.
“There is some disagreement about whether what we are seeing is the beginning of a recession or a mature phase of expansion with slow population growth due to immigration restrictions,” Sahin said. “I’m on the latter side because I believe what we’re seeing is the delayed effects of the soft landing that the Fed has accomplished almost perfectly.”
KPMG US senior economist Matt Nestler also noted in his written comment to Yahoo Finance: “An aging population and restrictive immigration policy are putting pressure on labor supply. As a result, the break-even number of payrolls (i.e. the number needed to keep the unemployment rate constant) is much lower each month. We expect low payroll increases in the monthly jobs report.”
Emma Ockerman He is a reporter at Yahoo Finance, covering economics and workforce issues. You can reach him at: emma.ockerman@yahooinc.com.
