The US job market is struggling in 2025, and it will be difficult to see a respite in 2026

The Zhitong Finance App learned that this year has been a difficult year for Americans looking for jobs. Forecasters believe that employment prospects will not improve much in 2026.

Economists say that despite steady economic growth, the unemployment rate will remain high for almost the whole of next year. Some people point out that this unusual combination is due to increasingly influential AI investments driving economic growth without boosting employment.

The stagnation in the labor market means that next year we will once again face limited employment opportunities and slow wage growth, which will increase the financial pressure on American households before the midterm elections. This also means that the employment structure will lean more significantly towards the healthcare sector, which contributed almost all of the net increase in employment in 2025.

KPMG chief economist Diane Swank said, “Much of the GDP growth we have received comes from AI infrastructure investments. These investments have not created many jobs, and AI has also caused some job losses. We don't know the exact extent of this. Looks like this is just the beginning.”

Although economists say the US is not in recession, the second half of 2025 looks like a recession for many job seekers. In the five months from June to November, the unemployment rate rose 0.5 percentage points to 4.6%, which is rare outside of the recession of the business cycle.

Groups with four-year college degrees have been particularly hard hit, reflecting the continuing freeze on white-collar jobs. Although the unemployment rate for this group is still slightly lower than that of less educated workers, the historical advantage that young college graduates have maintained for a long time in job search has disappeared this year.

At the same time, the recruitment rate data shows an even more serious sign — the extent of its slump has reached a historic low. If we take into account the economic laws of the past few decades, the current level should have corresponded to a higher unemployment rate. There has been an increase in layoff announcements in recent months, fueling Americans' dissatisfaction with the job market.

In particular, workers outside the healthcare industry are in a difficult situation: excluding this sector, the number of non-farm payrolls actually declined in the first 11 months of 2025.

Looking ahead, there are also some positive elements. Wells Fargo senior economist Michael Puglitzer said that the Federal Reserve has cut interest rates this year and is expected to continue to cut interest rates in 2026. At the same time, tax cuts and possible relaxation in the Trump administration's trade policy should also help. This is the main source of uncertainty for small businesses this year.

But Pugliser said, first, “The labor market may still be somewhat weak, whether the unemployment rate rises by a few more percentage points.”

All of this has led to a slowdown in wage growth as the balance of the labor market continues to shift away from workers to employers. This is in stark contrast to 2022 and 2023, when workers had the upper hand and employers were forced to offer higher pay to attract talent.

According to a Harris poll conducted in October, 55% of working Americans are worried about losing their jobs, and nearly half said they think it will take at least four months to find a new job of similar quality if they lose their current job.

According to several wage growth indicators, wages are currently growing at the slowest rate in four years, and the wage growth of low-income earners is lower than that of high-income earners. This has exacerbated this year's “K-type economy” trend, that is, inequality is widening.

This is a risk for Republicans, who won the majority last year due in part to popular anger over rising prices increasing concerns about the cost of living. As they enter the 2026 campaign season, the current state of the job market may become a new focus.

KPMG's Swank said, “Overall wage growth is likely to be close to the rate of inflation, or even slightly higher than overall inflation. But the problem is the distribution of wages.”

Black unemployment problem

The unfair prioritization of employed groups is also becoming increasingly evident. Over the past few months, the unemployment rate for black Americans has risen sharply, from 6% in May to 8.3% in November. The ratio of black to white unemployment is now at the same level as the highest level since 2019.

Although part of the increase reflects more black people joining the labor force, historically, every time the US job market loses momentum, black workers are disproportionately affected. The Trump administration's move to reduce the size of the federal government (black workers make up too much of the federal labor force) has worsened the difficulties they face in an already challenging employment environment this year.

Michelle Holder, an economist who studies the labor market performance of black Americans, said there is still a risk that the black unemployment rate will continue to rise in 2026.

“Even if the overall unemployment rate continues to fluctuate around 4.6%, various trends indicate that the consequences of a stagnant economy are falling more and more heavily on the shoulders of black workers,” said Holder.

Economists say they expect GDP to grow 2% in 2026, driven by steady consumer spending and strong business investment. However, according to median estimates, recruitment will remain sluggish as in 2025, and the average unemployment rate next year will be higher than this year.

Although respondents said they expect the unemployment rate to drop slightly by the end of 2026, Citigroup economist Veronica Clark warned that if recruitment fails to pick up, the risk will “skew towards worse outcomes.”

“This is a very long period of low recruitment, and until this situation changes, you'll be worried that the next step will be larger layoffs,” Clark said.