Labor Market Continues to Cool Without Cracking
- Ed Sullivan
- Jan 9
- 2 min read
Breaking News: Market Update
The December 2025 U.S. employment report showed job growth of 50,000, a decline in the unemployment rate to 4.4%, and a modest acceleration in wage pressures. This reinforces the view that the labor market is slowing in an orderly, non-disruptive way.
While the pace is well below that recorded during the post-pandemic expansion, it remains sufficient to absorb modest population growth without signaling recessionary stress. Importantly, stability in the unemployment rate suggests that labor demand is cooling roughly in line with labor supply, rather than collapsing outright. This combination points to deceleration, not deterioration, in the labor market.
For interest-rate-sensitive sectors, including housing and construction, this report suggests there is no urgency to cut the federal funds rate later this month. Absent a significant downside surprise in future employment reports, the Federal Reserve’s pause in rate cuts is likely to extend further. Our assumption of one 25-basis-point reduction in the federal funds rate through the remainder of Powell’s term remains intact.
With no alarms triggered by the labor report, attention now turns to the critical inflation data scheduled for release next week. Last month’s 2.7% reading showed significant improvement, though many suggest the report reflected downward data distortions related to the government shutdown. If improvement in inflation is sustained, it could imply lower inflation premiums in long-term loans and mark the beginning of declining long-term lending rates — a critical ingredient for a private construction recovery.
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