Employers slow hiring as costs, AI, and policy risks pile up

The US labor market entered the new year barely moving after a rough 2025 that ranked among the weakest periods for job growth since 2009. December hiring likely stayed soft, closing a year defined by hesitation instead of momentum.

Economists expect about 60,000 jobs were added in the final month, a small figure that capped a year where payrolls rose roughly 670,000. That stands far below the 2 million jobs created in 2024 and shows how sharply conditions cooled.

Unemployment probably edged down to 4.5% in December from a four-year high, but that dip offered little comfort. Employers largely stopped expanding payrolls after years of fighting for workers. Job openings stabilized, signaling many firms felt fully staffed.

At the same time, shifting trade policies under President Donald Trump pushed companies to protect margins. Cost controls came first. New hires came later, if at all. The labor market did not crash. It simply stalled.

Employers slow hiring as costs, AI, and policy risks pile up

Hiring slowed across most industries as companies adjusted to a different playbook. Artificial intelligence became a bigger part of daily operations, allowing firms to raise output without adding headcount.

That shift limited payroll growth even as demand stayed steady. Still, the slowdown did not trigger mass job cuts. Layoffs remained rare, keeping the labor market locked in a low-hire, low-fire pattern.

Meanwhile after delivering three interest-rate cuts at the end of 2025, policymakers are expected to hold off for at least the first 3 to 4 months of this year. Officials want clearer evidence that inflation continues to cool before making further moves. Steady employment, even at low growth, gives them room to wait.

But more data is coming fast.The Bureau of Labor Statistics is set to release November figures on job openings, quits, and layoffs.Those numbers will show whether workers feel confident enough to leave jobs and whether firms are quietly trimming staff.

The Institute for Supply Management will also publish December surveys covering manufacturers and service providers, offering another look at hiring trends inside key sectors of the labor market.

The government will release October housing starts next week, and the University of Michigan will publish its preliminary January consumer sentiment index, both updates that will show whether households and builders are reacting to the same uncertainty weighing on employers.

Economists warn the hiring freeze cannot last forever

With retirements continuing, American companies will eventually need new workers. Claudia Sahm said the labor market faces two clear roads in 2026. They are:-

1. “We really slow down in terms of hiring, and we hit a place where the bottom falls out. And it’s not just about slow hiring, it’s about firing workers and a recession.”
2. “The uncertainty lifts, they’re ready to pick up hiring, and you see things really stabilize and kind of look more like a labor market that we’ve been more used to in terms of the job opportunities and adding workers.”

A rise in layoffs would flood the market with job seekers, increasing competition. If hiring improves across sectors while layoffs stay low, conditions would ease for unemployed Americans and workers stuck waiting for openings.

Chris Martin, lead researcher at Glassdoor, said change is inevitable. “At some point, something has to happen,” Martin said. He added that even a return to stability could lead to more quits, more hires, and more firings compared with today’s frozen state.

A ZipRecruiter survey found in September that 63% of employers expect to hire moderately or significantly in 2024, a 13% drop from 2024.

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