Year-end jump in employment

January 5, 2026

Payroll employment is expected to rise by 120,000 in December, its fastest pace since the high-water mark for the year in April. Public sector payrolls are expected to account for 20,000 of those gains. The Department of Homeland Security continues to staff up.

That would bring employment for the year to 730,000, its weakest pace since the recession in 2020. It will be the second weakest year since the global financial crisis in 2009. The quality of jobs has deteriorated with work done by ADP revealing a steady increase in the share of part-time jobs since the end of the pandemic.

The catch-up following the government shutdown and a later-than-usual start to the holiday season will likely buoy gains for the last month of 2025. A later-than-usual Thanksgiving delayed much of the traditional holiday hiring from November to December. Retail, leisure and hospitality and retail trade rank high on that list. We saw a similar phenomenon last year: December 2024 was the strongest month of hiring for the year.

Hiring in healthcare and social services is expected to remain the primary driver of employment. The recent freezing of childcare funds for states could disrupt those gains and cause collateral damage to working families in January. Many childcare facilities lack the financial cushion to keep payrolls going as the states scramble to prove the funds are being properly spent. Disruptions due to childcare hit working parents hardest.

Gains elsewhere are expected to remain muted. Construction is getting a modest lift due to the construction of data centers but the manufacturing sector continues to struggle. Gains in sectors protected by tariffs are not enough to offset the squeeze on margins due to higher input costs downstream.

The vehicle sector has suffered some of the worst margin compression, opting to absorb the cost of tariffs due to affordability problems. Some of those pressures should abate as we move into 2026. The administration has removed the stacking of vehicle parts and steel tariffs and aluminum tariffs, which put an undue burden on domestic producers.

Average hourly earnings are expected to rise 0.3% and increase 3.6% from a year ago. That is a tick higher than the 3.5% of November. Hours worked should hold at 34.3 per week.

Separately, the unemployment rate is expected to edge down a tenth of one percent to 4.5% but that is still one-half percent higher than January. Hiring gains and a drop in participation in the labor market will make the picture look brighter. The spike in temporary layoffs due to the government shutdown should be reversed.