Labor market measures point in all directions

The US labor market enters 2026 at one of its most confusing moments in recent history. Workers with a strong foothold in the labor market are thriving, but people trying to break in or make a move face hurdles. Some key labor market measures are at their strongest levels in nearly 25 years, while others suggest weakness rarely seen outside recessions. Looking across a larger set of measures, they collectively show more variance relative to their historical norms than at any other point since 2001, aside from the time of uneven pandemic recovery. One can find a measure to support both positive or negative views of the labor market; one must look at multiple measures to make sense of this moment.

Many measures show that workers are faring well. The prime-age employment-population ratio (the number of employed people as a share of the civilian noninstitutional population aged 25–54) averaged 80.6 percent in the second half of 2025, just shy of a recent peak. Its level today is at the 91st percentile among all months since 2001—in other words, it's higher today than in 90 percent of the months since 2001 (see table below). This measure has the advantage of including people who are not in the labor force, so it doesn't get worse as people enter the labor force and start searching for work, as the unemployment rate does.

Inflation-adjusted, or real, earnings are also near historical highs. Despite concerns about affordability, real weekly earnings for both typical workers and lower-wage workers are at their highest point ever, except for a moment during the pandemic when a loss of low-wage jobs skewed average wages upward.

Unemployment measures look strong, too, relative to recent history. The 6-month average of the headline unemployment rate was 4.4 percent in December, which was at the 72nd percentile among all months since 2001. Other variants of the unemployment rate were also as good or better than their typical level from the past 25 years, including the broader U-6 rate, which includes discouraged and involuntary part-time workers; the long-term unemployment rate, which includes people unemployed 27 weeks or more; and the core unemployment rate, which excludes temporary layoffs. All of these unemployment rates have risen modestly in the last year but are still strong relative to recent history—which is a warning sign but not a collapse.

In contrast, monthly nonfarm payroll growth is weak by historical standards. Employers have added an average of just 15,000 jobs monthly over the past six months, which puts the growth rate at the 22nd percentile among all months over the past 25 years. It has fallen dramatically over the past year: The 6-month average growth rate was 171,000 jobs per month in December 2024, which was at the 49th percentile. The main driver of this decline is immigration policies in 2025 that slowed workforce growth, lowering the "breakeven rate" of payroll growth needed to hold measures like the employment-population ratio and the unemployment rate steady.

The most alarming labor market indicator, however, is the hires rate, which in November was at its lowest level since 2012, aside from the worst months of the pandemic. The hiring rate was at the 15th percentile among all months over the past 25 years. Hiring has fallen since 2022 and has flattened out at a historically low level since 2024 (figure 1).

Some tempting explanations for the decline in hiring don't line up with the timing. If artificial intelligence (AI) were the reason, the hiring slowdown would have accelerated in 2025, rather than plunging earlier. If current Trump administration policy were the reason, the hiring slowdown would have started in 2025, rather than earlier.

A more likely reason is that the pandemic broke the relationship between hires and unemployment. Pre-pandemic, low hiring and high unemployment went hand-in-hand: The November 2025 hires rate of 3.2 percent would have typically accompanied an unemployment rate of around 8 percent, whereas the actual November 2025 unemployment was just 4.5 percent (figure 2). The hires rate has fallen earlier and even more sharply since 2023 than payroll growth has. The pandemic recovery saw lots of hiring and reallocation of labor, and some firms over-hired, leading to the low hiring rate we have today.

Low hiring creates its own kind of pain, even though other household labor-market measures are relatively strong and real earnings are close to all-time highs. Low hiring hurts young people most since many are newly entering the labor market. Their employment rates have fallen in the past year, while employment for most other age groups has held steadier or even increased. The New York Federal Reserve survey confirms that the perceived probability of finding a new job if you lost your current job is at the lowest level in over a decade.

Unemployment, payroll growth, and hiring are pointing in different directions to a nearly unprecedented degree. While it's tempting to compare today's labor market to other moments in the past, there hasn't been this combination of high employment, slow payroll growth, and very low hiring in recent decades. History is a worse guide than usual. And it's especially critical now to maintain multiple sources of high-quality labor market data to have the clear, full picture: a strong labor market for people with jobs, and a rough market for people who want jobs.