For much of the past two years, the narrative surrounding the U.S. labor market was one of steady cooling. After the extraordinary hiring surge that followed the pandemic recovery, job creation gradually lost momentum, culminating in a notably soft — even choppy — 2025. Nonfarm payroll growth averaged only about 10,000 jobs per month last year, and payrolls contracted during the fourth quarter. Concerns about a softening labor market last year were significant enough to contribute to the Federal Reserve’s decision to cut rates three times between September and December.
The story in 2026 has been notably different. While hiring remains below its rapid pace in the earlier stages of the economic recovery, labor market conditions have firmed meaningfully. The unemployment rate has held below 4.5% for nearly six years, one of the longest stretches of labor market stability on record. At the same time, layoffs are very near their historical lows. Importantly, job growth has become more broadly based and steadier month-to-month than at this time last year. Healthcare and social assistance continue to account for a significant share of payroll gains, but hiring strength is no longer concentrated in just a handful of industries. Through the first half of 2026, 11 of 14 private sector industries posted positive payroll growth, up from only five in 2025.
The bottom line: Labor market fears that dominated late 2025 have eased considerably. Hiring growth remains moderate by historical standards, but low unemployment, historically low layoff activity, and broader participation across industries suggest the labor market is once again providing a solid foundation for sustained economic growth.
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