Personal Finance: The low-hire, low-fire economy
The latest U.S. employment report was released last week, and the results were a mixed bag. Just 50,000 jobs were created in December, rounding 2025 with 584,000 new jobs for the year or 49,000 per month. That is a marked slowdown from the 168,000 per month last year and represents the lowest average monthly pace in more than two decades outside of recessions, according to The Wall Street Journal.
Combined with negative revisions to previous estimates for October and November, the three-month average for nonfarm payrolls was a negative 22,000 jobs per month. Over 80% of all new jobs were created during the first half of 2025; hiring in recent months has essentially flat lined.
Although the broader economy has been performing well, employers remain cautious. Faced with policy uncertainty including unpredictable tariffs and geopolitical tensions, companies are marking time in what the Fed Chair Jerome Powell described as a “low-hire, low-fire” economy. U.S. firms are holding onto existing workers but are not adding to payrolls despite a generally optimistic economic outlook.
Below the surface, the picture is even murkier. Most of the new jobs were created in health care and social services, leisure and hospitality, and education. Areas supported by expanding state and local government and higher income consumers were winners, while most other segments of the economy lost jobs during the year.
Manufacturing and transportation employment declined, largely due to a sharp increase in the effective tariff rate from 2.5% to 14.5% since January. Tariffs hit manufacturers especially hard, since over half of all imports into the U.S. are intermediate goods that go into American made finished products. And the biggest loser: federal government workers, with total employment down by 277,000 since the peak in January 2025.
New jobs are still being created, although at a markedly slower pace. In fact, despite the anemic December hiring activity, the unemployment rate ticked down from 4.5% to 4.4%. This suggests an interesting question: What is a “good” jobs number? One million? Two million? 584,000? As with most economic metrics, it depends. When asked by a friend, “How is your husband?”, a wise woman retorted, “Compared to what?”
One simple but useful way to assess a given number of new jobs is called the breakeven employment growth rate, defined as the number of new jobs consistent with a constant rate of unemployment. For example, one might ask how many jobs must be created this month to maintain the current unemployment rate of 4.4%.
A rapidly expanding pool of available workers requires a lot of new jobs to keep unemployment steady. In recent years, around 250,000 to 300,000 jobs per month were needed to maintain a constant unemployment rate, or somewhere north of 3 million per year. While the actual growth of 2 million jobs or 167,000 per month in 2024 sounds impressive, the unemployment rate rose from 3.8% to 4.1% by year end. Two million was good, but not good enough to keep unemployment from rising.
For the full year 2025, job creation averaged just 49,000 per month compared with an estimated mean breakeven job growth of around 70,000. However, during the second half of the year, the breakeven rate has fallen sharply, and the unemployment rate has more or less stabilized. Most economists expect 2026 to be even softer, both in job creation and labor supply, even as the overall economy maintains momentum.
Two broad trends are combining to depress the rate of growth in the labor force. First, aging of the population is unalterable at least in the intermediate term. The second factor is the sharp decline in net immigration due to more aggressive deportation policy. Both factors are weighing on the growth in available workers, an essential element in sustained economic growth.
The demographic shift has been under way for two decades as the average age of the population has increased. The share of the population age 25 to 54, considered prime age workers, has declined from nearly 60% in 1995 to less than 50% today. Meanwhile, the percentage of Americans 55 and over has swelled. Geezers rule.
In addition to the graying of the population, the share of working age Americans who are employed or seeking employment has eroded. The labor force participation rate has fallen from 67% in 2000 to 62.4% today, the lowest level since 1977 for a variety of reasons.
Immigration policy is a major factor contributing to the slowing growth of available workers. The required replacement rate of native-born citizens is around 2.1 births per woman, but the actual birth rate is around 1.6 per woman. In the absence of immigration, the overall labor force will soon begin to contract. This is important, since economic growth is a function of both an increasing labor supply and improvements in productivity. Net immigration declined from over 2 million in 2024 to around 400,000 last year and is projected to fall further in 2026.
Fortunately, the U.S. has enjoyed a surge in productivity or output per worker over the past couple years that has compensated for the weakening labor supply. America has been in a productivity slump since 2000 but is experiencing a resurgence, thanks perhaps in part to incremental penetration of artificial intelligence. A decline in the supply of workers can be offset if each worker is able to do more.
The unusual economic climate combining relatively strong GDP with slower hiring puts the Federal Reserve in a box, given their conflicting legal mandates of containing inflation while also promoting full employment. Still smarting from its early failure to recognize the persistence of inflation during the post covid recovery, the central bank is reticent to cut interest rates too quickly. A more modest breakeven employment growth this year could provide the breathing room the Fed needs. Markets are currently pricing in two quarter point cuts in 2026, which sounds about right in a low-hire, low-fire economy.
Christopher A. Hopkins, CFA, is a co-founder of Apogee Wealth Partners in Chattanooga.
