The U.S. labor market cooled sharply in the fourth quarter of 2025, ending a year that looked far different from the post-pandemic expansion. Employers added 50,000 jobs in December and 584,000 over the full year, down from roughly 2 million added in each of the previous two years and about 4 million in 2022. Monthly hiring averaged about 49,000, the lowest level since 2003 outside the 2009 recession and the 2020 lockdown period, according to a new Lee & Associates report. Earlier months were revised lower as well.
Despite weak hiring, unemployment fell slightly to 4.4%. The reason is fewer available workers rather than stronger demand. Net immigration dropped to roughly 410,000 in 2025 from more than 2.2 million the year before after stricter enforcement and limits on entry. With a smaller labor pool, the economy requires fewer new jobs to keep the unemployment rate steady.
Companies also held back on hiring due to uncertainty tied to trade policy and the possibility of tariff changes. Federal payrolls may decline by hundreds of thousands of workers, adding another constraint on employment growth. Economists noted that job creation in cyclical industries remains subdued.
Care Sectors Grow While Entry Level Work Tightens
Healthcare continued to add workers throughout the year and led all sectors, including strong gains in hospitals. Leisure and hospitality also expanded, and social assistance jobs rose, mainly in family services. In contrast, manufacturing, transportation, warehousing, and temporary help services reported declines.
Retail employment fell in December, including cuts at general merchandise stores and food and beverage retailers. Overall retail employment changed little across 2024 and 2025.
Younger workers experienced larger increases in unemployment than older workers. Employers are cautious about both hiring and layoffs, limiting openings for new entrants. Entry level roles are also increasingly exposed to automation, reducing opportunities for less experienced workers.
The labor market ended 2025 with stable unemployment but weak hiring, driven by a smaller workforce and cautious employers rather than strong economic expansion.
