The labor market cooled during a year of economic and financial market rollercoaster, and 2026 is expected to start slowly but improve later in the year, according to JPMorgan.
In a report, the bank’s economists attributed the loss of job momentum in 2025 to business uncertainty caused by President Donald Trump’s tariffs and trade policies.
“As a result, both long-term and short-term business planning has remained challenging, and layoff and hiring rates have been low,” Michael Feroli, chief U.S. economist at JPMorgan, said in the report. “Businesses are reluctant to make significant changes to either expand or reduce their payrolls when they’re uncertain about what the next six months may bring.”
In addition, JPMorgan noted that Trump’s immigration crackdown and deportation campaign have been more aggressive than anticipated.
This reduced labor supply, combined with the relatively stable labor participation rate, means that the monthly job gains needed to maintain a steady unemployment rate could drop to just 15,000 from 50,000. Despite the lower breakeven rate, unemployment will gradually increase.
“The first half of 2026 will likely experience uncomfortably slow growth in the labor market, with unemployment peaking at 4.5% in early 2026,” JPMorgan said, a week before the Labor Department released the delayed November jobs report.
The bank blamed sluggish growth on the shrinking labor supply due to deportations, an aging population, and fewer visas for workers and students.
Another factor contributing to the early-2026 slump is artificial intelligence, which has spurred substantial investment in equipment, software, and data centers but not as much job creation.
While there are still no signs of widespread job losses due to AI, JPMorgan pointed out that some sectors most exposed to the technology have seen slower growth.
However, economists predicted that the labor market will reverse in the second half of the year, citing a more consistent tariff policy, tax cuts from Trump’s One Big Beautiful Bill Act, and additional rate cuts from the Federal Reserve.
“We believe that supports are coming together to arrest this labor market slowdown and revive activity growth next year,” Feroli said.
JPMorgan anticipates GDP growth in 2026 at 1.8%, with a one-in-three chance of a recession, and inflation remaining at 2.7%.
Separately, Bank of America CEO Brian Moynihan expects Trump to [complete action not specified], telling CBS News’ Face the Nation that an average tariff rate of 15% for a broad group of counties is “not a significant impact.”
Meanwhile, AI could be a wild card that provides another boost next year.
“Typically, it takes several years for general-purpose technologies like AI to boost productivity,” Feroli added. “A faster realization of efficiency gains could lead to stronger GDP growth than expected.”
But that optimism contrasts with continued warnings from computer scientist and “godfather of AI” Geoffrey Hinton, who has said [unspecified statement].
During an [event not specified], he was asked for his 2026 predictions after declaring 2025 a pivotal year for AI.
“I think we’ll see AI get even better,” Hinton replied. “It’s already extremely good. We’ll see it having the ability to replace many jobs. It can already replace jobs in call centers, but it will be able to replace many other jobs.”