A miserable year for workers

January 9, 2026

Payrolls rose by 50,000 jobs in December.  Employment expanded by a mere 584,000 in 2025, its weakest annual pace since 2020 and the second weakest since the global financial crisis in 2009. A whopping 84% of those gains occurred in the first four months of the year. Since then, job gains have come to a virtual standstill.

Census data through September suggest significant downward benchmark revisions, which are due out in February. The Bureau of Labor Statistics (BLS) does not get data on the birth and death rates of firms and their hiring until after the initial data is reported. Those can result in substantial revisions, notably at inflection points. Firm failures picked up during the year.

Public sector payrolls rose by 13,000 jobs in December. The bulk of those gains were in local government, outside of education, which added 18,000 jobs. The federal government added 2,000 jobs, while state governments shed 7,000. The Department of Homeland Security has been hiring up, while local governments boosted education payrolls. The public sector shed 136,000 jobs for the year, mostly at the federal level.

Private sector payrolls rose by an anemic 37,000 jobs. Leisure and hospitality dominated jobs gains with an increase in 47,000 jobs, reflecting a catch-up after disruptions due to the government shutdown and a later-than-usual start to the holiday shopping and travel season. Much of holiday shopping and travel was compressed into the last month of the year.

Healthcare and social assistance added 37,000 jobs. Gains were dominated by increases in childcare and individual and family services. Those two sectors were the few to dominate what little employment we saw since May. Telecommunications added 10,600, financial services added 7,000 and real estate added 5,500.

Retail shed 25,000 jobs. Many large retailers have implemented hiring freezes reflecting the squeeze on low- and middle-income households, the shift to online and plans to automate more operations via AI.  That shift will continue in 2026.

Manufacturing and construction shed 19,000 jobs. Manufacturing shed 68,000 jobs during the year, the most since April 2025 when the tariff tantrum erupted in financial markets. The job losses in manufacturing were revised to less than we saw a month ago. Construction shed nonresidential specialty contractor jobs, which had been rising to meet the demand for data centers. We are entering 2026 with less of a backlog on data center construction than when we entered 2025.

Average hourly earnings rose by 0.3% after being revised up in November. That translates to a 3.8% increase in wages from a year ago, up 0.2% from November. That is its fastest annual pace in four months. Wages accelerated in retail, information and financial services.

Some of that acceleration reflects a loss in low-wage workers relative to high-wage workers, especially in places like retail. Management is losing jobs faster than front-line workers. Entry-level workers have taken it on the chin this past year. That should reverse a bit in January as minimum wages rose in 19 states for an estimated 8.3 million workers in January 2026.

Separately, the unemployment rate fell from a downwardly revised 4.5% in November to 4.4% in December. Job gains in the household survey were stronger than in the establishment survey, while the ranks of the unemployed fell. Many of those who were temporarily laid off in the wake of the government shutdown were able to return to work. Participation in the labor force edged lower to 62.4% from 62.5%; the losses were among those with a high-school diploma.

Among demographic groups, participation among Blacks was hit the hardest. Women over the age of 45 lost ground. Many of those women are caught in what is known as the sandwich generation, caring for grandchildren and elderly relatives.

Participation among young adult men fell. That age group dominates unpaid elder care according to earlier data released by the Bureau of Labor Statistics on disruptions to work.

The U6 measure of unemployment, which includes marginalized workers and those forced to accept part- instead of full-time jobs due to poor labor market conditions, fell to 8.4% from 8.7%, but remains more than 2% above the levels we saw pre-pandemic.

Quit rates edged up slightly at the end of November, while layoffs remained subdued according to the job openings and labor turnover data. The outlier was leisure and hospitality, where quit rates soared. That reflects a rise in immigrant workers exiting many of those jobs.  

The ranks of the long-term unemployed rose after dropping in November. The median length of unemployment surged to its highest level since emerging from the pandemic. Those forced to accept part- instead of full-time edged down only slightly but ended the year at the highest level since the pandemic in 2020.

Part-time employment has been rising as a share of total jobs, along with multiple job holders. Multiple job holders fell in December but remained elevated. They are now at their highest level for year-end on record. Multiple job holders have been rising during expansions this century. That was not the case during the booms of the 1980s and 1990s, and speaks to the lesser quality of jobs available for too many workers.