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The labor market cooled during a rollercoaster year for the economy and financial markets, and 2026 should start off slow but then improve later in the year, according to JPMorgan.
In a forecast published earlier this month, economists at the bank attributed 2025’s loss of jobs momentum to business uncertainty created by President Donald Trump’s tariffs and trade policies.
“As a result both long-term and short-term business planning has remained difficult, and layoff and hiring rates have been low,” Michael Feroli, chief U.S. economist at JPMorgan, said in the report. “Businesses are hesitant to make sweeping changes to either grow or shrink their payrolls when they’re unsure what the next six months might hold.”
In addition, Trump’s immigration crackdown and deportation campaign have been more aggressive than expected, JPMorgan added.
This reduced supply of workers plus the relatively flat labor participation rate flat mean that the monthly job gains needed to keep unemployment steady could tumble to just 15,000 from 50,000. Despite the lower breakeven rate, unemployment will creep higher.
“The first half of 2026 will likely deliver uncomfortably slow growth in the labor market, with unemployment peaking at 4.5% in early 2026,” JPMorgan said, a week before the Labor Department released the delayed November jobs report that showed the rate climbing to a four-year high of 4.6%.
The bank blamed sluggish growth due to the labor supply shrinking from deportations, an aging population and fewer visas for workers and students.
Another factor in the early-2026 slump is artificial intelligence, which has spurred massive investment in equipment, software and data centers — but not so much job creation.
While there are still no signs yet of widespread job losses because of AI, some of the sectors most exposed to the technology have seen slower gains, JPMorgan pointed out.
But then the labor market will reverse course in the second half of the year, economists predicted, citing a more consistent tariff policy, tax cuts from Trump’s One Big Beautiful Bill Act, and additional rate cuts from the Federal Reserve.
“We believe supports are coming together that will arrest this labor market slowdown and revive activity growth later next year,” Feroli said.
JPMorgan sees GDP growth in 2026 at 1.8%, with one-in-three odds of a recession, and inflation remaining sticky at 2.7%.
Separately, Bank of America CEO Brian Moynihan expects Trump to de-escalate trade tensions next year, telling CBS News’ Face the Nation that an average tariff rate of 15% for a broad group of counties is “not a huge impact.”
Meanwhile, AI could be a wildcard that provides yet another boost next year.
“Usually, it takes several years for general purpose technologies like AI to boost productivity,” Feroli added. “A quicker realization of efficiency gains could lead to stronger GDP growth than expected.”
But that optimism contrasts with continued warnings from computer scientist and “godfather of AI” Geoffrey Hinton, who has said AI will replace more and more human workers.
During an interview on CNN’s State of the Union on Sunday, he was asked for his 2026 predictions after declaring 2025 a pivotal year for AI.
“I think we’re going to see AI get even better,” Hinton replied. “It’s already extremely good. We’re going to see it having the capabilities to replace many, many jobs. It’s already able to replace jobs in call centers, but it’s going to be able to replace many other jobs.”
Written by Jason Ma for Fortune as “The job market in 2026 will suffer from ‘uncomfortably slow growth’ in the first half but reverse higher later in the year, JPMorgan says” and republished with permission.
