US Job Growth Slows in December; unemployment rate drops to 4.4%

US job growth slowed more than expected in December due to corporate caution about hiring due to tariffs and rising investment in artificial intelligence, but the unemployment rate fell to 4.4%, supporting expectations that the Federal Reserve would leave interest rates unchanged this month.Nonfarm payrolls rose by 50,000 jobs last month after rising by a downwardly revised 56,000 in November, the Department of Labor’s Bureau of Labor Statistics said Friday. Economists polled by Reuters had forecast 60,000 new jobs, following a previously reported increase of 64,000 in November.

The closely watched employment report suggested the labor market remained stuck in what economists and policymakers have called a “no ‌hire, no fire” mode. It also confirmed that the economy was in a jobless expansion. Economic growth and worker productivity rose sharply in the third quarter, partly due to the boom in AI spending.The labor market lost significant momentum last year, largely due to President Donald Trump’s aggressive trade and immigration policies, which economists and policymakers say reduced both the demand and supply of workers.

However, the sharp moderation in job growth began in 2024. The BLS estimates that approximately 911,000 fewer jobs were created in the twelve months through March 2025 than previously reported. The agency will release its payroll benchmark revision next month along with the January employment report.

The overcount is attributed to the birth-death model, which is used by the BLS to estimate how many jobs were gained or lost as businesses opened or closed in a given month. Last month, the BLS said it would change the birth-death model starting in January by including current sample information every month.

Along with the December employment report, the BLS published annual revisions to household survey data from the past five years. The unemployment rate is calculated based on the household survey. Annual population control adjustments, normally included in the January employment report, will be postponed. The November unemployment rate was revised downwards from the previously reported 4.6% to 4.5%.

The average forecast in a Reuters poll of economists was for the unemployment rate to fall to 4.5% in December. Some economists say low supply has prevented a sharp rise in unemployment. They estimate that between 50,000 and 120,000 jobs need to be created every month to keep pace with the growth of the working-age population.

The U.S. central bank cut its benchmark interest rate by a quarter of a percentage point in December to the 3.50%-3.75% range, but officials indicated they would likely suspend further cuts in borrowing costs for now to get a better sense of the economy’s direction.

With factors like tariffs and AI preventing companies from hiring more workers, economists are increasingly viewing labor market challenges as structural rather than cyclical, which would make interest rate cuts less effective at boosting job growth.