US job growth slowed in November as the labor market hit an “air pocket” in the fourth quarter, with the federal government shedding workers and wage growth slowing to the lowest in over two years, raising expectations that the Federal Reserve may cut interest rates in January.
Nonfarm payrolls increased by 64,000 last month, modestly above economists’ expectations of 50,000, but following a steep loss of 105,000 in October. The unemployment rate rose to 4.6%, the highest since August 2021, slightly above forecasts of 4.5%.
Average hourly earnings grew 0.1% month-on-month in November, missing the estimated 0.3% gain, while year-on-year earnings growth slowed to 3.5% from 3.7%, the slowest since May 2021.
The weak jobs figures were largely driven by federal government cuts, as employees who accepted buyouts earlier in 2025 fell off payrolls. Federal jobs fell 157,000 in October and 5,000 in November. Private sector hiring added 52,000 jobs in October and 69,000 in November, but gains were concentrated in healthcare and social assistance, which added 129,000 jobs over the two months, and construction, which added 27,000. Other industries, including leisure and hospitality, retail, transportation, warehousing, manufacturing, and information, saw little growth or outright losses.
“The job market hit an air pocket in the fourth quarter as the federal government shed workers,” said Bill Adams, chief economist at Comerica.
“The latest jobs data pressure the Fed to cut rates again when they next meet in January. Hiring momentum has weakened in recent months, and the Fed will want to arrest this deterioration and help labor demand regain traction.”
Jeffrey Roach, chief economist at LPL Financial, said the report reflects a transformation in the labor market. “Wages are slowing and will make consumer income become a dominant theme in the new year,” he said.
“Further, a rotation in labor supply will also be a theme as we see more individuals formerly not in the labor force begin their job search. The Fed will continue to focus on the fragilities in the labor market to justify further cuts in 2026.”
Economists expect job growth to pick up in early 2026, supported by lower interest rates and more expansionary fiscal policy.