US job growth slows in December as unemployment dips, strengthening case for Fed pause

US job growth slowed more than expected in December as employment declined in construction, retail and manufacturing. However, a fall in the unemployment rate to 4.4 percent suggested the labour market was not weakening sharply.

The Labor Department’s closely watched employment report released on Friday also showed firm wage growth, reinforcing expectations that the Federal Reserve will keep interest rates unchanged at its January 27–28 meeting.

Policy uncertainty and AI weigh on hiring

Economists have linked sluggish hiring to President Donald Trump’s aggressive trade and immigration policies, which they say have reduced both labour demand and supply. Businesses are also holding back on recruitment as they invest heavily in artificial intelligence and remain uncertain about future staffing needs.

The economy is showing signs of a jobless expansion, with growth and worker productivity rising strongly in the third quarter, partly driven by AI-related gains.

“All roads lead to the unemployment rate, which should ease the Fed’s recent urgency to support a weakening labour market,” said Olu Sonola, head of US economic research at Fitch Ratings. “That said, weak job growth cannot be ignored. Hiring remains sluggish, and cyclical sectors are not offering much reassurance.”

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Payroll gains miss expectations

Nonfarm payrolls rose by 50,000 jobs in December, following a downwardly revised increase of 56,000 in November, according to the Bureau of Labor Statistics. Economists polled by Reuters had expected a gain of 60,000 jobs after an earlier estimate of 64,000 for November.

Labour market momentum weakened significantly last year, with only 584,000 jobs added, averaging 49,000 per month.

Job figures face downward revisions

Around 2 million jobs were created in 2024, though the figure could be revised lower when the BLS releases its benchmark payroll revision next month. The agency has estimated that about 911,000 fewer jobs were created in the 12 months through March 2025 than previously reported.

The overcount has been attributed to the BLS’s birth-death model, which estimates employment changes from business openings and closures. The agency said it will revise the model from January by incorporating more current data each month.

Gains limited to a few sectors

Job growth in December was confined to a small number of industries. Employment at restaurants and bars rose by 27,000, while healthcare payrolls increased by 21,000, mainly at hospitals. Social assistance added 17,000 jobs.

These gains were well below the average monthly increases recorded in 2025 and 2024.

Retail, manufacturing and construction shed jobs

The retail sector lost 25,000 jobs, manufacturing shed 8,000 positions and construction payrolls declined by 11,000. Economists have linked factory job losses to tariff increases under the Trump administration, although Trump has defended the duties as necessary to revive manufacturing.

Wages firm, markets steady

Wages rose 3.8 percent year on year, up from 3.6 percent in November, helping to support consumer spending. US stocks were largely flat after the report, the dollar strengthened against a basket of currencies and Treasury yields were mixed.

Unemployment data revised

Alongside the December jobs report, the BLS released annual revisions to household survey data for the past five years. The unemployment rate for November was revised down to 4.5 percent from 4.6 percent. Economists had expected the jobless rate to ease to 4.5 percent in December.

Population control adjustments will be released in March.

Fed likely to pause rate cuts

Some economists said limited labour supply has helped prevent a sharp rise in unemployment, estimating that between 50,000 and 120,000 jobs are needed each month to keep pace with growth in the working-age population.

The Federal Reserve cut its benchmark interest rate by a quarter point to a range of 3.50 percent to 3.75 percent in December but has signalled a pause in further rate cuts as policymakers assess economic conditions.

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