Calculated Risk

Thursday, January 01, 2026

Question #2 for 2026: How much will job growth slow in 2026? Or will the economy lose jobs?

by Calculated Risk on 1/01/2026 02:36:00 PM

Last year, I wrote about 2025:

"So, my forecast is for gains of around 1.0 million jobs in 2025. This will probably be the slowest job growth since 2010 (excluding the 2020 pandemic job losses)."

That was a little optimistic - excluding the pandemic and the great recession - 2025 saw the fewest jobs added since 2003. Ouch.

For review, here is a table of the annual change in total nonfarm, private and public sector payrolls jobs since 1997.

Change in Payroll Jobs per Year (000s)
	Total, Nonfarm	Private	Public
1997	3,406	3,211	195
1998	3,046	2,733	313
1999	3,188	2,727	461
2000	1,933	1,669	264
2001	-1,733	-2,284	551
2002	-518	-751	233
2003	124	166	-42
2004	2,040	1,893	147
2005	2,529	2,343	186
2006	2,091	1,882	209
2007	1,146	858	288
2008	-3,548	-3,728	180
2009	-5,039	-4,965	-74
2010	1,022	1,238	-216
2011	2,058	2,370	-312
2012	2,186	2,253	-67
2013	2,299	2,366	-67
2014	2,991	2,864	127
2015	2,7173	2,563	150
2016	2,331	2,124	207
2017	2,115	2,035	80
2018	2,286	2,159	127
2019	1,986	1,771	215
2020	-9,274	-8,199	-1,048
2021	7,233	6,837	396
2022	4,555	4,256	299
2023	2,594	1,860	734
2024	2,012	1,559	453
2025	610¹	766¹	-156¹
¹11 Months through November.

The bad news is the job market has stalled. The BLS noted in December:

"Total nonfarm payroll employment ... has shown little net change since April."

Fed Chair Powell noted at the recent FOMC press conference that the economy might have lost an average of 20,000 jobs per month over that period.

Click on graph for larger image.

And more bad news - for job growth - is that the labor force will grow slowly in 2026!

This graph shows the jobs added per month since January 2021.

It appears that population growth will be slow in 2026 (births minus deaths plus net immigration) and the overall participation rate will decline due to demographics. That suggests that labor force will grow slowly. My sense is the economy will not lose jobs in 2026, but it is possible.

So, my forecast is for gains of around 0.6 to 1.0 million jobs in 2026. This might be an even slower year for job growth than 2025!

Here are the Ten Economic Questions for 2026 and a few predictions:

• Question #1 for 2026: How much will the economy grow in 2026? Will there be a recession in 2026?

• Question #2 for 2026: How much will job growth slow in 2026? Or will the economy lose jobs?

• Question #3 for 2026: What will the unemployment rate be in December 2026?

• Question #4 for 2026: What will the participation rate be in December 2026?

• Question #5 for 2026: What will the YoY core inflation rate be in December 2026?

• Question #6 for 2026: What will the Fed Funds rate be in December 2026?

• Question #7 for 2026: How much will wages increase in 2026?

• Question #8 for 2026: How much will Residential investment change in 2026? How about housing starts and new home sales in 2026?

• Question #9 for 2026: What will happen with house prices in 2026?

• Question #10 for 2026: Will inventory increase further in 2026?

Question #3 for 2026: What will the unemployment rate be in December 2026?

by Calculated Risk on 1/01/2026 09:11:00 AM

Click on graph for larger image.

The unemployment rate is from the household survey (CPS), and the rate increased in November to 4.6%, up from 4.2% in November 2024. An unemployment rate of 4.6% over the next few months might suggest an employment recession according to the Sahm rule.

Forecasting the unemployment rate includes forecasts for economic and payroll growth, and also for changes in the participation rate (previous question).

"Uncertainty" was the key economic word for 2025, and probably for 2026 too. There is significant uncertainty in the labor market with signs of weak hiring and concerns that AI will impact job growth. Sometimes an employment recession continues as some employed individuals become cautious. At the same time, we should see some economic boost from fiscal policy in 2026.

It appears that the participation rate will decline in 2026 based on demographics and that population growth will be slow due to less net migration. That suggests that the labor force will grow slowly in 2026. So even if job growth stays slow in 2026 (next question), the unemployment rate might stabilize or even decline.

However, my guess is the unemployment rate will be in the mid-to-high 4% range in December 2026.

Wednesday, December 31, 2025

Thursday: Happy New Year!

by Calculated Risk on 12/31/2025 08:04:00 PM

Note: Mortgage rates are from MortgageNewsDaily.com and are for top tier scenarios.

Thursday:
• The NYSE and the NASDAQ will be closed in observance of the New Year’s Day holiday

Question #4 for 2026: What will the participation rate be in December 2026?

by Calculated Risk on 12/31/2025 12:56:00 PM

Earlier I posted some questions on my blog for next year: Ten Economic Questions for 2026. Some of these questions concern real estate (inventory, house prices, housing starts, new home sales), and I posted thoughts on those in the newsletter (others like GDP and employment will be on this blog).

I'm adding some thoughts and predictions for each question.

Here is a review of the Ten Economic Questions for 2025.

4) Participation Rate: In November 2025, the overall participation rate was at 62.5%, unchanged year-over-year from 62.5% in November 2024, and below the pre-pandemic level of 63.3% in February 2020. Long term, the BLS is projecting the overall participation rate will decline to 61.1% by 2034 due to demographics. What will the participation rate be in December 2026?

The overall labor force participation rate is the percentage of the working age population (16 + years old) in the labor force. A large portion of the decline in the participation rate since 2000 was due to demographics and long-term trends.

The Labor Force Participation Rate in November 2025 was at 62.5% (red), down from the pre-pandemic level of 63.3% in February 2020, and up from the pandemic low of 60.2% in April 2020. (Blue is the employment population ratio).

From February 2020 to April 2020, 12 million people had left the labor force due to the pandemic. By November 2025, the labor force was about 4 million higher than the pre-pandemic high.

Population growth had been weak in the 2010s, but picked up over the last few years, primarily due to more immigration. However, net immigration slowed in late 2024 and slowed sharply in 2025.

The second graph shows the participation rate for "prime age" workers (25 to 54 years old). The 25 to 54 participation rate was at 83.8% in November 2025 Red), above the pre-pandemic level of 83.0% - and near the all time high of 84.6% in 1999. This suggests there are very few prime age workers that will return to the labor force.

This means demographics will be the key driver of the participation rate in 2026 (barring some unseen event). Demographics will be pushing the participation rate down over the next decade, so, my guess is the participation rate will decline by 0.2 to 0.3 percentage points over the next year to around 62.3% in December 2026.

Freddie Mac House Price Index Up 1.0% Year-over-Year in November

by Calculated Risk on 12/31/2025 09:39:00 AM

Today, in the Calculated Risk Real Estate Newsletter: Freddie Mac House Price Index Up 1.0% Year-over-Year in November

A brief excerpt:

Freddie Mac reported that its “National” Home Price Index (FMHPI) increased 0.19% month-over-month (MoM) on a seasonally adjusted (SA) basis in November.

On a year-over-year (YoY) basis, the National FMHPI was up 1.0% in November, down from up 1.1% YoY in October. The YoY increase peaked at 19.2% in July 2021, and for this cycle, and previously bottomed at up 1.1% YoY in April 2023. The YoY change in November is a new cycle low. ...

As of November, 19 states and D.C. were below their previous peaks, Seasonally Adjusted. The largest seasonally adjusted declines from the recent peaks are in D.C. (-4.9%), Montana (-3.2%), and Florida (-2.8%).

For cities (Core-based Statistical Areas, CBSA), 140 of the 387 CBSAs are below their previous peaks.

Here are the 30 cities with the largest declines from the peak, seasonally adjusted. Punta Gorda has passed Austin as the worst performing city. Note that 5 of the 6 cities with the largest price declines are in Florida.

A third of the cities on the list are in Florida.

There is much more in the article!

Weekly Initial Unemployment Claims Decrease to 199,000

by Calculated Risk on 12/31/2025 08:30:00 AM

The DOL reported:

In the week ending December 27, the advance figure for seasonally adjusted initial claims was 199,000, a decrease of 16,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 214,000 to 215,000. The 4-week moving average was 218,750, an increase of 1,750 from the previous week's revised average. The previous week's average was revised up by 250 from 216,750 to 217,000.
emphasis added

The following graph shows the 4-week moving average of weekly claims since 1971.

Click on graph for larger image.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 218,750.

Tuesday, December 30, 2025

Wednesday: Unemployment Claims

by Calculated Risk on 12/30/2025 07:29:00 PM

Note: Mortgage rates are from MortgageNewsDaily.com and are for top tier scenarios.

Wednesday:
• At 8:30 AM, The initial weekly unemployment claims report will be released.

FHFA’s Q3 National Mortgage Database: Outstanding Mortgage Rates, LTV and Credit Scores

by Calculated Risk on 12/30/2025 02:24:00 PM

Today, in the Calculated Risk Real Estate Newsletter: FHFA’s Q3 National Mortgage Database: Outstanding Mortgage Rates, LTV and Credit Scores

A brief excerpt:

Here are some graphs on outstanding mortgages by interest rate, the average mortgage interest rate, borrowers’ credit scores and current loan-to-value (LTV) from the FHFA’s National Mortgage Database through Q3 2025 (released this morning).
...
This shows the surge in the percent of loans under 3% starting in early 2020 as mortgage rates declined sharply during the pandemic.

Note that a fairly large percentage of mortgage loans were under 4% prior to the pandemic!

The percent of outstanding loans under 4% peaked in Q1 2022 at 65.1% (now at 51.5%), and the percent under 5% peaked at 85.6% (now at 68.6%). These low existing mortgage rates make it difficult for homeowners to sell their homes and buy a new home since their monthly payments would increase sharply.

This was a key reason existing home inventory levels were so low. However, time is eroding this lock-in effect.

There is much more in the article.

FOMC Minutes: Further Cuts "Likely" Appropriate if Inflation Declines as Expected

by Calculated Risk on 12/30/2025 02:00:00 PM

From the Fed: Minutes of the Federal Open Market Committee, December 9–10, 2025. Excerpt:

In their consideration of monetary policy at this meeting, participants noted that inflation had moved up since earlier in the year and remained somewhat elevated. Participants further noted that available indicators suggested that economic activity had been expanding at a moderate pace. They observed that job gains had slowed this year and that the unemployment rate had edged up through September. Participants assessed that more recent indicators were consistent with these developments. In addition, they judged that downside risks to employment had risen in recent months.

Against this backdrop, most participants supported lowering the target range for the federal funds rate at this meeting, while some preferred to keep the target range unchanged. A few of those who supported lowering the policy rate at this meeting indicated that the decision was finely balanced or that they could have supported keeping the target range unchanged. Those who favored lowering the target range for the federal funds rate generally judged that such a decision was appropriate because downside risks to employment had increased in recent months and upside risks to inflation had diminished since earlier in 2025 or were little changed. Some of these participants emphasized that lowering the target range for the federal funds rate at this meeting was in line with a forward-looking approach to the pursuit of the Committee's dual-mandate objectives. These participants noted that reducing the policy rate at this meeting would be consistent with the projected decline in inflation over coming quarters while contributing to a strengthening of economic activity in 2026 that would help stabilize labor market conditions after this year's cooling. Those who preferred to keep the target range for the federal funds rate unchanged at this meeting expressed concern that progress toward the Committee's 2 percent inflation objective had stalled in 2025 or indicated that they needed to have more confidence that inflation was being brought down sustainably to the Committee's objective. These participants also noted that longer-term inflation expectations could rise should inflation not return to 2 percent in a timely manner. Some participants who favored or could have supported keeping the target range unchanged suggested that the arrival of a considerable amount of labor market and inflation data over the coming intermeeting period would be helpful in making judgments on whether a rate reduction was warranted. A few participants judged that lowering the federal funds rate target range at this meeting was not justified because data received over the intermeeting period did not suggest any significant further weakening in the labor market. One participant agreed with the need to move toward a more neutral monetary policy stance but preferred lowering the target range by 1/2 percentage point at this meeting.

In considering the outlook for monetary policy, participants expressed a range of views about the restrictiveness of the Committee's policy stance. Most participants judged that further downward adjustments to the target range for the federal funds rate would likely be appropriate if inflation declined over time as expected. With respect to the extent and timing of additional adjustments to the target range for the federal funds rate, some participants suggested that, under their economic outlooks, it would likely be appropriate to keep the target range unchanged for some time after a lowering of the range at this meeting. A few participants observed that such an approach would allow policymakers to assess the lagged effects on the labor market and economic activity of the Committee's recent moves toward a more neutral policy stance while also giving policymakers time to acquire more confidence about inflation returning to 2 percent. All participants agreed that monetary policy was not on a preset course and would be informed by a wide range of incoming data, the evolving economic outlook, and the balance of risks.

In discussing risk-management considerations that could bear on the outlook for monetary policy, participants generally judged that upside risks to inflation remained elevated and that downside risks to employment were elevated and had increased since the middle of 2025. Most participants noted that a move toward a more neutral policy stance would help forestall the possibility of a major deterioration in labor market conditions. Many of these participants also judged that the available evidence pointed to a reduced probability that tariffs would lead to persistent inflation pressures. These participants observed that it was appropriate for the Committee to ease its policy stance in response to downside risks to employment, thereby helping to bring the risks to achieving the dual-mandate goals into better balance, and suggested that a move toward a more neutral policy stance at this meeting would leave policymakers well positioned to determine the extent and timing of additional adjustments to the policy rate, with these judgments being based on the incoming data, the evolving outlook, and the balance of risks. By contrast, several participants pointed to the risk of higher inflation becoming entrenched and suggested that lowering the policy rate further in the context of elevated inflation readings could be misinterpreted as implying diminished policymaker commitment to the 2 percent inflation objective. Participants judged that a careful balancing of risks was required and agreed on the importance of well-anchored longer-term inflation expectations in achieving the Committee's dual-mandate objectives.
emphasis added

Newsletter: Case-Shiller: National House Price Index Up 1.4% year-over-year in October

by Calculated Risk on 12/30/2025 09:58:00 AM

Today, in the Calculated Risk Real Estate Newsletter: Case-Shiller: National House Price Index Up 1.4% year-over-year in October

Excerpt:

S&P/Case-Shiller released the monthly Home Price Indices for October ("October" is a 3-month average of August, September and October closing prices). August closing prices include some contracts signed in June, so there is a significant lag to this data. Here is a graph of the month-over-month (MoM) change in the Case-Shiller National Index Seasonally Adjusted (SA).

The National index increased 0.37% month-over-month (MoM). This is the 3rd consecutive month with a MoM increase seasonally adjusted that followed 5 consecutive months with a MoM decline.

There is much more in the article.

Thursday, January 01, 2026

Question #2 for 2026: How much will job growth slow in 2026? Or will the economy lose jobs?

Question #3 for 2026: What will the unemployment rate be in December 2026?

Wednesday, December 31, 2025

Thursday: Happy New Year!

Question #4 for 2026: What will the participation rate be in December 2026?

Freddie Mac House Price Index Up 1.0% Year-over-Year in November

Weekly Initial Unemployment Claims Decrease to 199,000

Tuesday, December 30, 2025

Wednesday: Unemployment Claims

FHFA’s Q3 National Mortgage Database: Outstanding Mortgage Rates, LTV and Credit Scores

FOMC Minutes: Further Cuts "Likely" Appropriate if Inflation Declines as Expected

Newsletter: Case-Shiller: National House Price Index Up 1.4% year-over-year in October

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