- U.S. 10-year Treasury yields slipped about 1 bp after December jobs data showed weak payroll growth but a slightly lower unemployment rate.
- The 2-year yield rose as markets leaned toward the Fed holding rates near term rather than cutting soon.
- Goldman Sachs delayed its first expected rate cut to June 2026 (with another in September), citing softer hiring, downward revisions, and sticky inflation.
- 2025 job growth was the weakest since 2003 outside recessions, with modest wage gains and uneven sector performance.
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The December 2025 jobs report released on January 9 painted a mixed portrait of the U.S. labor market: while the unemployment rate ticked down to 4.4% (from a revised 4.5%), nonfarm payrolls added only 50,000 jobs—well short of estimates ranging from 60,000 to 73,000. October and November job numbers were revised downwards by 76,000 combined, weakening momentum heading into 2026.
In bond markets, this combination of weak hiring yet stable unemployment strengthened expectations that the Fed will maintain current interest rates in the near term. 10-year Treasury yields dipped (~1 basis point to 4.17-4.18%) in response. Meanwhile, the 2-year yield rose, reflecting elevated market uncertainty and anticipating rate stability before eventual easing.
Goldman Sachs adjusted its forecast accordingly: previously expecting rate cuts in March and June, the bank now sees the first cuts in June and September 2026, projecting the federal funds rate to finish the year around 3.00-3.25%. Other analysts and market indicators—for example, the CME FedWatch Tool—also shifted probabilities of cuts further out, reflecting policymakers’ hesitancy without stronger cooling in inflation.
The labor market’s softening is uneven: sectors such as health care, social assistance, and food services showed positive job gains; traditional consumer-facing areas—like retail—shed jobs. Retail declined by ~25,000 jobs. Wage growth rose modestly: average hourly earnings up 0.3% month-over-month, and 3.8% year-over-year.
Strategic implications include: investors and firms may need to adjust assumptions for rate-sensitive sectors (real estate, housing, financials); the Fed faces a balancing act between preventing wage- and service inflation, and accommodating sluggish payroll growth; economic forecasting must consider lagged effects and downward data revisions; and policymakers should monitor long-term unemployed trends and labor participation to assess slack in the labor market.
Open questions involve: whether the unemployment rate decline truly reflects stronger labor demand or simply shrinking supply/participation; whether inflation (especially in services) remains sticky in the absence of strong hire‐side pressure; the potential for external shocks (trade policy, tariffs) to reverse the weak hiring trend; and timing + size of future Fed cuts depending on upcoming inflation and growth data.
Supporting Notes
- December nonfarm payrolls +50,000, well below estimates (~60-73k) and down from revised November gain of 56,000.
- Unemployment rate fell to 4.4% from a revised 4.5% in November.
- Wage growth: +0.3% month-over-month; year-over-year earnings +3.8%.
- October revised from −105,000 to −173,000 jobs; November revised down by 8,000. Combined revision −76,000 jobs.【2】【8】
- 10-year Treasury yield dipped to ≈ 4.165-4.17% post-report.
- Goldman Sachs now expects two 25 bps cuts in June and September 2026; federal funds rate to end 2026 at 3.00-3.25%.
- Total job gains in 2025: +584,000 jobs—weakest annual growth since 2003 when excluding recession periods.
- Sectors breakdown: +27,000 in food services & drinking places, +21,000 in health care, +17,000 in social assistance; retail lost ~25,000 jobs.