What the December 2025 jobs report told us about the labor market – and what it could mean for interest rates

The U.S. labor market showed mixed signs in December, as investors and policymakers are paying attention to the last jobs data release of 2025.

The monthly jobs report carries added significance after a prolonged government shutdown caused a data blackout, limiting the availability of labor market indicators in recent months. Now that reporting has resumed, December 2025’s release provides an opportunity to assess whether the recent patterns of slowed hiring and moderating wage growth will continue into 2026.

What the US labor market showed at the end of 2025

Recent labor market data points to a job market that shows signs of stabilizing but is expanding more slowly than before. Indeed, the average monthly gain in private payrolls over the past six months has been just 43,000 jobs – well below the average pace experienced in 2024. At the same time, wage growth has continued to ease, with average hourly earnings up 3.8% over the past year.

Importantly, the recent slowdown appears to indicate companies are pulling back on hiring rather than resorting to widespread layoffs. Employers seem to be holding onto their existing workers while waiting to see what happens with inflation and borrowing costs. That dynamic has helped prevent a sharp rise in unemployment, even as job creation has softened.

What did December 2025’s jobs numbers tell us?

The labor market finished the year on a sluggish note from a hiring perspective, as the U.S. added 50,000 jobs in December, down slightly from the revised 56,000 the month prior.  Employment increased in the health care, food and services and social assistance sectors, while retail jobs declined.

U.S. nonfarm payroll employment

That said, the slightly lower unemployment rate of 4.4% (down from 4.6% in November 2025) was a welcome development amidst lingering economic uncertainty.

In addition, the December report offered insight into several areas that matter for markets and monetary policy. Here are three signals we’re watching.

Payroll growth

In his most recent press conference, Federal Reserve (Fed) Chair Jerome Powell said recent indicators suggest that “both layoffs and hiring remain low,”  and he pointed to payroll growth that has slowed notably since earlier in the year. December’s jobs report seems to continue this trend, which could nudge the Fed toward staying on the sidelines in January. 

The unemployment rate

After rising gradually since the summer, the unemployment rate ticked down in December, which was welcome. The trajectory of the unemployment rate will be key going forward. For the time being, the labor market has been defined as one of low hiring and low firing, which has resulted in slowing payroll gains but also a contained rise in the unemployment rate. J.P. Morgan Wealth Management’s Global Investment Strategy team believes that the unemployment rate should remain near current levels in 2026, but they will be watching closely for any signs of layoffs picking up pace. 

Wage growth

Wage growth remains an important factor for inflation and Fed policy. Powell has indicated that moderating wage growth is one reason the economy does not appear to be growing too fast. If wage growth continues to ease, it would support the view that inflation pressures are cooling. However, a renewed acceleration could complicate the inflation outlook.

What the December jobs report could mean for the Federal Reserve

The December jobs data arrives as the Fed weighs still-elevated inflation against rising risks to employment. Recent rate cuts were intended to reduce the risk that slower growth and hiring turn into something more severe. This report shows softer, yet somewhat resilient labor conditions, which will likely give the Fed room to pause rate cuts at its first meeting in January. Furthermore, a pause would allow policymakers to evaluate how those earlier cuts are affecting the economy.

As Powell and other officials have emphasized, future policy decisions will depend on how incoming data evolves, with labor market trends playing a central role alongside inflation and consumer spending. Keep an eye on the next Consumer Price Index (CPI) release on January 13 to contextualize the snapshot of the U.S. economy’s overall health at the start of 2026.

The bottom line

While this month’s data may shape expectations for future employment trends and Fed policy, it's unlikely to provide any definitive answers on its own.

For investors, the key takeaway is context. Understanding how this report fits into broader labor and inflation trends matters more than the headline numbers themselves. As 2026 begins, it’s more important to focus on long-term trends rather than short-term fluctuations.

In this environment, diversification is often a good response to uncertainty. With slower growth, easing inflation and a cautious Fed pulling markets in different directions, maintaining balance across asset classes may help investors navigate short-term volatility without losing sight of longer-term goals.

To learn how economic developments may affect your investing strategy, consult with a J.P. Morgan advisor.

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