U.S. Labor Market Cools as JOLTS and December Jobs Data Signal “Low‑Hire, Low‑Fire” Economy

This week’s economic data includes: (1) Job Openings and Labor Turnover

Survey (JOLTS) for November and 2) job creation and employment situation for

December.

KEY SUMMARY:

JOLTS: The November JOLTS report shows a cooling labor market with fewer job openings and slower hiring but no significant layoffs, reinforcing a “low hire, low fire” environment despite softening demand.

Job openings fell by 303,000 in November to 7.15 million, the lowest level since September 2024 and below expectations of 7.65 million, marking an 885,000 year-over-year decline. The ratio of job openings to unemployed individuals dropped to 0.91, its weakest since March 2021, signaling a softer labor market. Hiring also slowed, declining by 253,000 to 5.12 million, while layoffs decreased by 163,000 to 1.69 million, coming in below expectations. Layoffs fell across nearly all sectors and regions except the Northeast, indicating the absence of significant layoffs despite weaker demand.

Meanwhile, voluntary resignations (quits) rose by 188,000 to 3.16 million, lifting the quits rate to 2.0% from 1.9%, suggesting workers remain confident in job prospects even as openings and hiring decline. Overall, the November JOLTS report points to a cooling labor market with fewer opportunities and slower hiring but no significant layoffs, reinforcing a “low hire, low fire” environment rather than a sharp deterioration.

Job creation and employment situation: The U.S. labor market remained stable in December with modest job gains, concentrated growth in healthcare and services, a slight drop in unemployment to 4.4%, and wage increases tempered by shorter workweeks, signaling slowing momentum but surprising resilience.

The U.S. labor market showed resilience in December, with no signs of significant deterioration despite slower job growth and concentrated gains in a few sectors. Employers added 50,000 jobs, below expectations and down from November’s revised 56,000, while October job losses were revised higher to 173,000. The three-month moving average remained negative, signaling weakening hiring momentum. Private sector employment rose by 37,000, missing forecasts, while government employment increased by 13,000, driven by local government hiring. Healthcare and social assistance continued to lead job creation, though healthcare hiring slowed compared to previous years.

Industry trends reflected mixed performance: service sectors added 58,000 jobs, led by healthcare, social assistance, and food services, while retail trade declined. Goods-producing industries contracted for the eighth consecutive month, with losses in construction and manufacturing partly due to weather-related disruptions. The employment diffusion index fell to 50.8%, indicating job gains were concentrated in limited sectors. Wage growth edged up, with hourly earnings rising 0.3% month-over-month and 3.8% year-over-year, but shorter workweeks offset some of the income gains.

The unemployment rate declined to 4.4%, driven by a 278,000 drop in unemployment and a 46,000 decline in the labor force—which is the sum of employment and unemployment—despite 232,000 individuals gaining jobs. Labor force participation slipped to 62.4%, while long-term unemployment and median jobless duration reached their highest levels since 2021, signaling challenges in job finding. Layoffs fell sharply, temporary help services continued to decline, and part-time employment for economic reasons decreased. Overall, the labor market remains stable but shows signs of slowing momentum and concentrated growth, with wage gains tempered by reduced hours.

Initial jobless claims rose slightly to 208,000, while continuing claims increased to 1.914 million, indicating layoffs remain low but unemployed workers are taking longer to find new jobs.

Initial jobless claims rose slightly to 208,000 for the week ending January 3, up 8,000 from the prior week but still below market expectations of 212,000.  The four-week moving average fell to 211,750, signaling no major layoffs. Continuing claims, which reflect ongoing unemployment, increased to 1.914 million for the week ending December 27, up 56,000 from the previous week and above expectations, with the four-week average climbing to 1.892 million. These trends suggest that although layoffs remain low, it’s taking workers who lose their jobs longer to find new employment.

Equity markets posted strong gains, driven by minimal recession risk, improved consumer sentiment, expected fiscal stimulus, and sectoral rotation into consumer cyclicals and basic materials.  Treasury yields held largely steady amid mixed labor data and subdued inflation expectations, reinforcing expectations for Fed policy to remain on hold near term with two rate cuts anticipated in mid-2026.

Equity markets closed the first full trading week of the year with strong gains, as the S&P 500 and Dow Jones Industrial Average reached record highs. The rally was driven by a mix of factors: a jobs report signaling a cooling economy without recession risk, improved consumer sentiment as tariff concerns eased, and optimism surrounding fiscal stimulus and corporate tax benefits under the One Big Beautiful Bill Act. Small-cap stocks also surged, with the Russell 2000 posting a notable advance, reflecting confidence in broader economic resilience.

Sector performance showed a rotation away from high-valuation technology stocks toward consumer cyclicals and basic materials, which led the rally. Aerospace and defense stocks also climbed on expectations of increased military spending. In fixed income markets, Treasury yields were largely stable, with mid-term yields edging slightly higher and short- and long-term yields declining modestly. Mixed labor data and subdued inflation expectations reinforced expectations that the Federal Reserve will hold rates steady in the near term. Markets continue to price in two 25-basis-point rate cuts for June and September 2026, while the probability of a cut at the January FOMC meeting remains low at 5%. Looking ahead, key economic releases next week include Consumer Price Index (CPI), Producer Price Index (PPI), retail sales, and housing data.

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DETAILED ANALYSIS:

JOLTS – November Update: 

The Bureau of Labor Statistics (BLS) reported that job openings fell by 303,000 in November to 7.15 million, the lowest level since September 2024 and below market expectations of 7.65 million. This marks a decline of 885,000 year-over-year and aligns with the pre-pandemic average. The drop was driven by sharp decreases in accommodation & food services (-148,000), transportation, warehousing & utilities (-108,000), healthcare & social assistance (-66,000), and state & local government (-97,000), partially offset by gains in retail trade (+121,000) and construction (+90,000). Job openings remain highest in healthcare & social assistance (1.335 million) and professional & business services (1.334 million), with all regions reporting declines.

The ratio of job openings to unemployed individuals fell to 0.91, its lowest since March 2021, signaling slightly more unemployed workers than available jobs. Hiring also weakened, dropping by 253,000 to 5.12 million – the lowest since June 2024 – with broad-based declines, particularly in healthcare & social assistance (-76,000) and state & local government (-69,000). The hiring rate slipped to 3.2% from 3.4%. Layoffs decreased by 163,000 to 1.69 million, below expectations and down year-over-year, with losses most pronounced in accommodation & food services (-107,000) and healthcare & social assistance (-52,000). Layoffs declined across nearly all sectors and in every region except the Northeast.

Conversely, voluntary resignations (quits) rose by 188,000 to 3.16 million, exceeding expectations and driven by accommodation & food services (+208,000) and construction (+39,000). The quits rate ticked up to 2.0% from 1.9%, suggesting workers remain confident about job prospects despite overall softening demand. Overall, the November JOLTS report highlights a cooling labor market with fewer openings and hires but continued employer reluctance to cut jobs, reinforcing a “low hire, low fire” labor market.

Job Creation and Employment Situation – December Update:

Overview

According to the Bureau of Labor Statistics (BLS), the U.S. labor market showed no signs of significant deterioration, although growth remained tepid and concentrated in a few industries, while the unemployment rate declined. Employers added 50,000 jobs in December, which was down from 56,000 in November (revised from 64,000) and below market expectations of 70,000. Job losses in October were revised higher to 173,000, the largest since December 2020, primarily due to federal government workers who accepted deferred buyouts earlier in the year rolling off payrolls at the end of September. Combined revisions for October and November were 76,000 lower than previously reported. The three-month moving average, which smooths monthly fluctuations, was negative 22,000 in December compared to negative 3,000 in November, signaling a loss of hiring momentum.

Private and Government Employment

Private sector employment growth slowed in December, increasing by only 37,000, which missed the forecast of 75,000 and was down from 50,000 in November (revised from 69,000). Government employment improved by 13,000, driven by an 18,000 increase in local government jobs. Private sector growth was primarily driven by an increase of 58,000 in service sectors, partially offset by a decline of 21,000 in goods-producing sectors. Employment continued to be concentrated in healthcare and social assistance, although hiring in healthcare—the main driver of job growth over the past four years—slowed in December. On an annual basis, healthcare employment rose by an average of 34,000 per month in 2025, which was less than the average monthly gain of 56,000 in 2024.

Industry Breakdown

The service industry growth was led by healthcare, which added 21,000 jobs, with most of the increase occurring at hospitals (+16,000). Social assistance added 17,000 jobs, and food services and drinking places added 27,000 jobs, partially offset by a decline of 25,000 jobs in retail trade. The goods-producing sector shed jobs, including declines of 11,000 in construction and 8,000 in manufacturing, marking eight consecutive months of contraction. The slowdown in construction was mainly attributed to a decline of 7,800 in specialty trade contractors, which appears to have resulted from workers not showing up due to unusually cold weather.

Employment Diffusion Index

The employment diffusion index, which measures whether job growth is broadly distributed across industries or concentrated in a few sectors, fell to 50.8% in December from 55.6% in November. This indicates that job gains were concentrated in a limited number of sectors, most notably healthcare and social assistance.

Unemployment and Labor Force

The unemployment rate declined to 4.4% in December from 4.5% in November (revised from 4.6%), which was lower than market expectations of 4.5%. This decrease was driven by a 46,000 decline in the labor force, representing negative 0.03% month-over-month growth, and a 278,000 decline in unemployment, a 0.14% decrease from the prior month. The labor force – which is the addition of employment plus unemployment – declined because unemployment fell by 278,000, more than offsetting a total of 232,000 individuals gaining employment during the month. As a result, the drop in the unemployment rate was due to a combination of a decline in the labor force and an increase in household employment.

Participation and Duration

The labor force participation rate declined slightly to 62.4%, aligning with market expectations and down from 62.5% the month prior. Long-term unemployment rose again, with 1.95 million individuals unemployed for 27 weeks or more, the highest since December 2021. The median duration of unemployment increased to 11.4 weeks from 9.8 weeks in November, also the highest since December 2021, indicating that it is taking longer to find jobs.

Layoffs and Job Indicators

Layoffs declined by 87,000 in December, primarily due to a 14,000 decline in permanent layoffs and a 73,000 decline in temporary layoffs. The number of job leavers declined by 29,000 in December. Employment in temporary help services, a leading labor market indicator, fell by 5,700, continuing an eight-month downward trend. The number of people working part-time for economic reasons decreased by 146,000 to 5.34 million, while the share of multiple jobholders declined to 5.4% of total employment, reflecting a 444,000 decline.

Wages and Hours

Wage growth edged up slightly, with average hourly earnings rising 0.3% month-over-month, in line with expectations, up from 0.2% in November. Year-over-year wage growth was 3.8%, exceeding expectations and up from 3.6% in November. Meanwhile, average weekly hours worked declined slightly to 34.2 from 34.3 in November, which was below expectations. These figures suggest that a shorter average work week offset higher wage growth, stalling overall income gains.

Jobless Claims – Week Ending January 3:

The Labor Department reported that initial jobless claims rose by 8,000 to 208,000 for the week ending January 3, up from 200,000 the prior week (revised from 199,000) and below market expectations of 212,000. The four-week moving average, which smooths seasonal fluctuations, declined to 211,750—down 7,250 from the previous week’s revised average of 219,000—signaling the absence of major layoffs.

Continuing claims, which track individuals receiving unemployment benefits and are reported with a one-week lag, increased to 1.914 million for the week ending December 27, up 56,000 from 1.858 million (revised from 1.866 million) the prior week and above expectations of 1.900 million. The four-week moving average rose by 21,000 to 1.892 million from 1.872 million, indicating that workers who lose their jobs are taking longer to find new employment.

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MARKET ANALYSIS:

Equity Market Weekly Recap

Equity markets ended the first full trading week with strong gains, as the S&P 500 and Dow Jones Industrial Average closed at fresh record highs on Friday. The rally was driven by several factors: a mixed employment report showing weaker-than-expected job creation but a lower unemployment rate and moderate wage growth; improved consumer sentiment as tariff concerns eased; and heightened growth expectations fueled by fiscal stimulus and corporate tax benefits under the One Big Beautiful Bill Act.

The jobs report, reflecting a “low hire, low fire” labor market, was interpreted as a sign that the economy is cooling without weakening sharply – helping to avoid recession fears. Notably, the Russell 2000 index of small-cap stocks posted a significant gain, signaling confidence in the broader economy.

Consumer cyclical (discretionary) and basic materials led the market rally, primarily driven by investors rotating away from high-valuation technology stocks as growth in mega-cap tech stocks showed signs of slowing momentum. Aerospace and defense stocks also rallied strongly on expectations of increased military spending.

Weekly and Year-To-Date (YTD) Performance Highlights:

• Nasdaq: +1.88% (weekly) & +1.85% (YTD), closing at 23,671
• S&P 500: +1.57% (weekly) & +1.76% (YTD), ending at 6,966
• Dow Jones Industrial Average: +2.32% (weekly) & +3.00% (YTD), closing at 49,504
• Russell 2000: +4.62% (weekly) & +5.73% (YTD), ending at 2,624

Treasury Market Update

Treasury yields were largely unchanged across maturities, with mid-term yields edging slightly higher while short- and long-term yields declined modestly. This movement was driven primarily by mixed jobs data, which signaled a cooling yet stable economy and reinforced expectations that the Federal Reserve will keep interest rates on hold in the near term. Additionally, lower consumer inflation expectations contributed to the downward pressure on long-term yields.

Weekly Key Performance Metrics:

• 2-year yield: 3.54% (+0.07%)
• 5-year yield: 3.75% (+0.01%)
• 10-year yield: 4.18% (-0.01%)

Rate Cut Expectations

As in the past three weeks, markets have fully priced in two 25-basis-point rate cuts. However, unlike last week—when cuts were expected in April and September 2026—this week markets anticipate cuts in June and September 2026.

Currently, markets assign only a 5% probability of a rate cut at the upcoming January 27–28 FOMC meeting, down from 17% the prior week. No cuts are expected for 2027. If implemented, the two cuts would lower the federal funds rate upper bound to 3.25%, down from the current 3.75%.

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NEXT WEEK’S ECONOMIC CALENDAR:

Key scheduled releases include:

• 1/13 (Tuesday):
  • CPI (December)
  • NFIB Small Business Optimism (December)
• 1/14 (Wednesday):
  • PPI (November)
  • Retail Sales (November)
  • Existing Home Sales (December)
• 1/15 (Thursday)
  • Weekly Initial and Continuing Jobless Claims

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For a visual representation of this week’s economic review, you can view or download the slide deck here:01.12.2026 CBC Weekly Economic Update Slides

Mark Yoon, CFA CPA

EVP & CFO of Commercial Bank of California

Thomas McCullough

EVP of Commercial Bank of California

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