US job growth fades in 2025 as labour market posts weakest year since Covid

A subdued end to a challenging year

The US labour market closed 2025 on a noticeably weaker footing, with job creation slowing to its softest pace since the Covid pandemic. New data from the US Labor Department showed that employers added just 50,000 jobs in December, a figure well below expectations and a sharp contrast to the stronger hiring seen in previous years. The modest gain capped a year in which momentum steadily faded, reinforcing concerns that the world’s largest economy is entering a more fragile phase.

December numbers underline the slowdown

December’s jobs figure was one of the weakest monthly readings outside of recessionary periods in recent memory. Hiring slowed across multiple sectors, reflecting a cautious approach by employers as economic uncertainty persisted. While some industries continued to add staff selectively, the overall picture pointed to restraint rather than expansion. Analysts noted that many firms appear to be prioritising cost control and productivity over workforce growth after several years of aggressive hiring.

Unemployment dips but tells a mixed story

Despite the weak job creation, the unemployment rate edged down to 4.4 percent. On the surface, this suggests resilience in the labour market. However, economists caution that falling unemployment alongside low job growth can signal underlying shifts, including reduced labour force participation or slower population growth. In other words, fewer people may be actively seeking work, which can mechanically lower the unemployment rate even as hiring cools.

The weakest year since the pandemic

Taken as a whole, 2025 marked the weakest year for US job creation since the height of the Covid crisis. Annual employment gains slowed significantly compared with the post pandemic rebound, when pent up demand and reopening effects fuelled rapid hiring. That rebound phase has now clearly passed. The current environment looks more like a transition period, where growth is positive but subdued, and employers are more sensitive to interest rates, demand signals, and global risks.

Interest rates and policy pressures

One factor shaping hiring decisions has been the prolonged period of tight monetary policy. Higher borrowing costs have weighed on business investment, particularly in sectors sensitive to financing conditions. While expectations have grown that interest rates may ease in 2026, companies have largely adopted a wait and see approach. This caution has translated into slower recruitment, even as layoffs have remained relatively contained.

Sectoral differences become clearer

The slowdown has not been evenly distributed. Healthcare and some service industries continued to add jobs, supported by demographic trends and steady demand. By contrast, manufacturing, technology, and parts of the retail sector showed signs of fatigue. In technology, firms that expanded rapidly earlier in the decade have focused on consolidation rather than growth. In manufacturing, softer global demand and trade uncertainty have constrained hiring plans.

What this means for workers

For workers, the cooling job market may gradually reduce bargaining power. Wage growth has already shown signs of easing as employers face less pressure to compete aggressively for talent. While this could help contain inflation, it also raises concerns about household income growth, especially as living costs remain elevated. Younger workers and those in cyclical industries may feel the impact first if hiring continues to soften.

Implications for 2026

Looking ahead, economists expect job growth to remain modest in early 2026. Much will depend on the direction of monetary policy, consumer spending, and global economic conditions. A gentle slowdown could help engineer a soft landing, where inflation cools without triggering a sharp rise in unemployment. However, if hiring weakens further, the risk of a broader economic downturn would increase.

A labour market at a turning point

The December figures underline that the US labour market is no longer a powerful engine of growth. Instead, it appears to be settling into a slower, more cautious phase after years of disruption and recovery. Whether this marks a healthy normalisation or the prelude to deeper weakness will become clearer in the months ahead. For now, the data suggests an economy adjusting to tighter conditions rather than one on the brink, but the margin for error is narrowing.