Labor Market Overview - The U.S. labor market is experiencing a rare phenomenon of simultaneous weakening in both supply and demand, leading to a cooling effect[12] - In 2025, non-farm payrolls increased by only 584,000, significantly lower than 2,012,000 in 2024 and 2,594,000 in 2023, marking the lowest level since 2010 excluding the pandemic[6] - The unemployment rate rose moderately from an average of 4.03% in 2024 to 4.24% in 2025, indicating a gradual increase rather than a sharp spike[6] Economic Indicators - The unemployment rate increased to 4.4% in December 2025, a slight decrease of 0.1 percentage points from the previous month[10] - Job openings to unemployed persons ratio fell from 1.09 at the end of 2024 to 0.92 in November 2025, reflecting a tighter labor market[9] - The PMI employment index for manufacturing dropped below 50, indicating contraction, while the non-manufacturing PMI showed signs of recovery, reaching 52 in December 2025[16] Future Projections - The downward trend in the labor market is expected to continue into 2026, but the likelihood of a rapid deterioration leading to recession is low[29] - The average unemployment rate is projected to rise to 4.4% in 2026, up from 4.2% in 2025, reflecting ongoing labor market challenges[29] - The Federal Reserve is anticipated to implement two more rate cuts of 25 basis points each in 2026 to mitigate labor market deterioration[29] Risks and Challenges - Risks include slow rate cuts potentially triggering a recession, prolonged inflation due to tariffs, and the effectiveness of policy stimulus falling short of expectations[29] - The labor force participation rate slightly declined from an average of 62.6% in 2024 to 62.4% in 2025, indicating reduced labor supply[14]