100,000! It may be the employment watershed for the U.S. interest rate cut

Report Summary

Brief Overview of Non-Farm Data for December 2025

1. Non-farm payrolls fell short of expectations, with significant downward revisions for the previous two months. Non-farm employment increased by 50,000, compared to an expectation of 70,000. The private sector added 37,000 non-farm jobs, while the expectation was 75,000. The total employment increase for October and November was revised down by 76,000. Job growth was concentrated in education and healthcare services (+41,000, previous value +59,000) and leisure and hospitality (+47,000, previous value -3,000). Employment shrank in sectors such as retail, construction, manufacturing, and professional and business services.

2. The unemployment rate unexpectedly fell, recorded at 4.4% (4.375%), compared to an expectation of 4.5% and a previous value of 4.5% (4.536%). The labor force participation rate decreased from 62.46% to 62.40%, with an expectation of 62.4%. The decline in the unemployment rate was mainly due to job growth and a slight contraction in supply, with the former contributing about 0.14 percentage points and the latter about 0.03 percentage points.

3. Hourly wage growth met expectations, but weekly hours declined. Hourly wages in the private sector increased by 0.3% month-on-month, in line with expectations, and year-on-year growth was 3.8%, compared to an expectation of 3.6%. Weekly hours fell from 34.3 hours to 34.2 hours, remaining at a low level since 2015. Weekly wages remained flat and did not increase (hourly wages are derived from weekly wages and weekly hours).

4. Market expectations for interest rate cuts have cooled. The futures market pricing for interest rate cuts this year decreased from 2.266 times to 2.087 times, with the first expected cut still in June and the second in December. In terms of asset performance, U.S. stocks rose slightly, U.S. Treasury rates fluctuated, and both the U.S. dollar index and gold rose.

Analysis of the Weakness in U.S. Job Growth Since 2025 and Implications

The average non-farm employment increase in November and December 2025 was 53,000, a decrease of about 115,000 compared to 2024.

First, federal government layoffs contributed approximately 28,000. The average monthly job increase in the federal government in 2024 was about 38,000, with only about 10,000 in the last two months. During Trump's previous term (2017-2019, excluding the pandemic-affected 2020), the average monthly job increase in the federal government was about 12,000, which is roughly consistent with the current level.

Second, tightening immigration policies contributed approximately 33,000. If we refer to the method used by the Minneapolis Federal Reserve to estimate directly from the supply side, the drag is about 67,000, but this may overestimate the impact as it ignores the weakening labor demand and contradicts wage data (a net decrease in immigration would lead to a decline in the supply of low-end labor, and if demand remains unchanged, we should see a rebound in wage growth for low-wage workers). An intuitive method is to observe changes in employment in immigration-sensitive industries and states. Construction, transportation and warehousing, leisure and hospitality, manufacturing, business services, and retail employ about 78% of illegal immigrants. States like California, Texas, and Florida employ 69% of illegal immigrants. Calculating the employment changes in immigration-sensitive industries within immigration-sensitive states, the average monthly job increase in 2024 was about 8,000, while in the third quarter of 2025 (latest data), it was about -25,000, a decrease of about 33,000 Again, layoffs due to AI may drag down approximately 65,000 people per month (median). According to the latest report from Challenger, there will be about 55,000 to 75,000 layoffs related to AI in 2025. It should be noted that there is currently no consensus estimate on the impact of AI overseas, and a survey by the New York Federal Reserve also shows that companies are more inclined to retrain employees rather than lay them off after applying AI.

Finally, after removing the impact of the three structural factors mentioned above, the remaining employment weakness can be attributed to the general weakening of labor demand, which drags down about 48,000 (115,000 - 28,000 - 33,000 - 65,000), driven by restrictive monetary policy, marginal fiscal contraction, and exogenous trade policy "uncertainty" shocks.

Based on the above analysis, an increase of around 100,000 jobs per month may be a watershed for observing the Federal Reserve's policy inclination. The tightening of immigration, government layoffs, and the impact of AI are structural, and monetary policy easing can only offset the cyclical demand decline in employment losses. The current employment growth (about 53,000 per month) plus the offsetting recovery from "demand weakening" (about 48,000 per month) is approximately 100,000 per month. This data indicates that, not considering structural factors, employment growth has returned to the level of 2024. A job growth of 100,000 per month also aligns with overseas estimates of the "breakeven job growth (employment growth that keeps the unemployment rate stable)." For the Federal Reserve, if new jobs continue to maintain the current level in the coming months, it means that further preemptive rate cuts are needed to support employment, and there is no need to overly worry about inflation (against the backdrop of low oil prices and peak core goods inflation, the inflationary risk should be a post-facto feedback of the economy, rather than a preemptive constraint on policy); if new jobs steadily recover to 100,000 per month, the Federal Reserve can pause rate cuts and maintain observation; if new jobs rapidly recover and stabilize at 100,000 per month or above, then the Federal Reserve may not need to cut rates further.

Risk Warning: U.S. employment and inflation data exceed expectations; uncertainty regarding U.S. tariff rulings.

Report Body

I. Analysis of the Causes of Weakness in U.S. Employment

In November and December 2025, the average new non-farm employment in the U.S. was 53,000. Compared to the average growth of 168,000 in 2024, it decreased by 115,000. The main factors for the decline in employment growth are: the exogenous shock of federal government layoffs, the general weakening of labor demand, and the net decline in immigration on the supply side, along with the impact of layoffs brought about by AI.

First, it is relatively easy to confirm that the drag from federal government layoffs is about 28,000.

In 2024, the average new employment in the U.S. federal government was about 38,000 per month, with about 10,000 in the last two months. During Trump's previous term (2017-2019, excluding the impact of the pandemic in 2020), the average new employment in the federal government was about 12,000 per month, which is basically consistent with the current level Secondly, the tightening of immigration policies has led to a decline in labor supply, approximately 33,000.

If we refer to the method of estimation directly from the supply side used by the Minneapolis Federal Reserve [1] **(Mongey, 2025), the drag is about 67,000. The logic is to use the net reduction in immigrants in 2025 (1.6 million) * the proportion of adults among immigrants (79%) * the employment population ratio (63.5%), and then divide by 12 months. However, this method may overestimate, as it implicitly assumes that immigrant labor can find jobs proportionally, ignoring the impact of weakened labor demand. Wage data can also indirectly support this. The marginal reduction in net immigration will lead to a decline in low-end labor supply. If demand remains unchanged, we should see a rebound in wage growth for low-wage workers. However, since 2025, the nominal and real wage growth of low-income groups in the United States has significantly declined compared to other groups.

A more intuitive method is to observe the changes in employment numbers in immigration-sensitive industries and immigration-sensitive states. The construction, transportation and warehousing, leisure and hospitality, manufacturing, business services, and retail industries employ the most illegal immigrants. According to the 2023 American Community Survey [2], these industries employ about 78% of illegal immigrants. According to estimates from the Pew Research Center [3], ten states, including California, Texas, and Florida, employ 69% of illegal immigrants. Calculating the employment changes in immigration-sensitive industries within immigration-sensitive states, the average monthly new employment in 2024 is about 8,000, while in the third quarter of 2025 (the latest state-level employment data), it is about -25,000, a reduction of about 33,000.

Again, how significant might the layoffs caused by AI be? Approximately 5,500-7,500 people per month. According to the latest report from Challenger, the layoffs directly caused by AI in 2025 are about 55,000. If we add the 20,000 layoffs under the category of "technological updates (possibly involving AI)," the total scale of AI-related layoffs is about 75,000. It should be noted that there is currently no consensus on the range of estimates for the employment impact of AI overseas. The New York Federal Reserve's survey [4] also shows that although the adoption rate of AI in U.S. companies is rapidly increasing, companies prefer to retrain employees rather than directly lay them off.

Finally, after removing the impacts of the above three factors, the remaining employment weakness can be attributed to a general weakening of labor demand, affecting approximately 48,000, driven by a relatively restrictive monetary policy, marginal fiscal contraction, and exogenous trade policy "uncertainty" shocks. Based on the above analysis, an increase of around 100,000 jobs per month is the watershed for observing the Federal Reserve's policy tendencies. The tightening of immigration, government layoffs, and the impact of AI are structural factors, while monetary policy easing can only offset job losses caused by cyclical demand declines. The current level of job growth, combined with the recovery from the "weak demand" offset, is approximately 100,000 new jobs per month, which also aligns with overseas estimates for "breakeven job growth (employment growth that maintains a stable unemployment rate)." For the Federal Reserve, if new job additions continue to maintain the current level in the coming months, it means that further preemptive interest rate cuts are needed to support employment, without excessive concern about inflation (given the backdrop of low oil prices and peak core commodity inflation, the inflationary risk should be a retrospective feedback of the economy, rather than a preemptive constraint on policy); if new job additions steadily recover to 100,000 per month, the Federal Reserve can pause interest rate cuts and maintain observation; if new job additions rapidly recover and stabilize at 100,000 per month or above, then the Federal Reserve may not have the need for further interest rate cuts.

II. Commentary on Non-Farm Data for December 2025

(1) New Non-Farm Jobs Below Expectations

In December 2025, the United States added non-farm jobs below expectations, and the data for the previous two months was significantly revised down. The number of new non-farm jobs was 50,000, while Bloomberg expected 70,000. The private sector added 37,000 non-farm jobs, while Bloomberg expected 75,000. The October job additions were revised down from -105,000 to -173,000, and November job additions were revised down from 64,000 to 56,000, totaling a downward revision of 76,000.

The breadth of job growth has slightly improved, but overall it remains at historically low levels since 2015. The three-month employment diffusion index rose from 50.4% to 52%, with an average of 64.1% from 2015 to 2019, and an average of 61.6% in 2019. The single-month employment diffusion index fell from 55.6% to 50.8%, with an average of 60% from 2015 to 2019, and an average of 58.8% in 2019.

From a major industry perspective, the employment growth in December was mainly concentrated in two sectors, education and healthcare services (+41,000, previous value +59,000), and leisure and hospitality (+47,000, previous value -3,000). Retail (-25,000, previous value -16,900), construction (-11,000, previous value 22,000), manufacturing, mining, wholesale, transportation and warehousing, professional and business services saw job shrinkage. In December, new strikes contributed to a drag of about 2,500 on new job numbers.

(2) Unemployment Rate Unexpectedly Declines

The unemployment rate recorded at 4.4% (4.375%), expected 4.5%, previous value 4.5% (4.536%). The labor participation rate decreased from 62.46% to 62.40%, expected 62.4%. The unexpected decline in the unemployment rate this month is mainly due to job growth and a slight contraction in supply, with the former impacting about 0.14 percentage points and the latter about 0.03 percentage points.**

Household survey basis: Total population increased by 183,000, labor force decreased by 46,000, employment increased by 232,000, unemployment decreased by 78,000, non-labor force increased by 229,000.

In terms of reasons for unemployment, the number of re-employed individuals, those temporarily laid off, and those finishing temporary jobs decreased, leading to a reduction in unemployment by 263,000, 73,000, and 48,000 respectively. Permanent unemployment and new entrants increased, contributing to an increase in unemployment by approximately 33,000 and 66,000 respectively.

The 3-month moving average of the unemployment rate is 0.33 percentage points higher than the low point of the past 12 months, below the warning threshold of the Sam Rule (0.5 percentage points).

(3) Hourly Wage Growth Matches Expectations, but Weekly Hours Decline

The month-on-month growth rate of hourly wages in the private sector was below expectations. Hourly wages increased by 0.3% month-on-month, expected 0.3%, previous value revised from 0.1% to 0.2%, and the annualized rate of change over 6 months increased from 3.7% to 3.9%. Year-on-year growth rate of hourly wages was 3.8%, expected 3.6%, previous value revised from 3.5% to 3.6%. Weekly hours decreased from 34.3 hours to 34.2 hours, still at a low level since 2015. Weekly wages remained flat.

(4) Expectations for Interest Rate Cuts Cool Down, U.S. Stocks and Dollar Rise, U.S. Treasury Rates Fluctuate Steadily

After the non-farm report was released, market expectations for interest rate cuts cooled down. The number of interest rate cuts priced in by the futures market this year decreased from 2.266 to 2.087 times, with the market expecting the first rate cut to occur in June and the second in December.

In terms of asset performance, U.S. stocks rose slightly, U.S. Treasury rates fluctuated, and the U.S. dollar index and gold rose together. The Dow Jones Industrial Average rose by 0.48%, the Nasdaq index rose by 0.81%, and the S&P 500 index rose by 0.65%; the U.S. dollar index rose by 0.28%, the yield on the 10-year U.S. Treasury remained basically flat at 4.165%, and the yield on the 2-year U.S. Treasury decreased by 4.2 basis points to 3.528% COMEX gold rose by 1.29%.

Risk Warning and Disclaimer

The market carries risks, and investment should be approached with caution. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at one's own risk