As 2025 draws to a close, the U.S. labor market is showing signs of strain. Unemployment reached 4.6% in November—a four-year high—and job growth has lost momentum. Looking ahead to 2026, economists at JPMorgan paint a mixed picture: "uncomfortably slow growth" in the first half of the year, followed by a potential reversal and revival in the second half.
This forecast points to a combination of policy uncertainties, demographic shifts, and technological changes shaping the job landscape.
The First Half: Uncertainty and Slowdown
JPMorgan predicts unemployment could peak at around 4.5% early in 2026. One major drag? Business uncertainty stemming from the Trump administration's trade policies and tariffs.
Companies are hesitant to hire or lay off workers when long-term planning feels impossible. As JPMorgan's chief U.S. economist Michael Feroli notes, "Businesses are hesitant to make sweeping changes to either grow or shrink their payrolls when they’re unsure what the next six months might hold."
Aggressive immigration enforcement and deportations are also shrinking the labor supply. Combined with an aging population and fewer worker visas, this means fewer people available to fill jobs. The "breakeven" monthly job gains needed to keep unemployment steady could drop dramatically—from about 50,000 to just 15,000.
AI's Double-Edged Sword
Artificial intelligence is pouring investment into equipment, software, and data centers, but it hasn't translated into widespread job creation yet. In fact, sectors most exposed to AI have seen slower employment growth.
On the upside, AI could eventually deliver productivity gains that boost the broader economy. Feroli suggests that if efficiency improvements from AI materialize faster than expected—a common lag with "general purpose technologies"—GDP growth could surprise to the upside.
But not everyone is optimistic. AI pioneer Geoffrey Hinton has warned that advancing AI capabilities could replace many jobs, from call centers to far beyond.
Reasons for Optimism in the Second Half
Despite the gloom early on, JPMorgan sees supports aligning for a labor market revival later in 2026. These include:
- More consistent tariff policies as trade negotiations settle
- Potential tax cuts
- Federal Reserve interest rate reductions
- Emerging AI-driven productivity boosts
Bank of America CEO Brian Moynihan adds a note of caution-turned-optimism on trade: even an average tariff rate of 15% across countries might not deliver a "huge impact" if tensions de-escalate.
What This Means for Workers and Businesses
The broader context isn't rosy—JPMorgan forecasts 1.8% GDP growth for 2026, with a one-in-three chance of recession and inflation sticking around 2.7%. Yet the expected second-half rebound offers hope that the job market can stabilize without plunging into deeper trouble.
For job seekers, the message is clear: the first half of 2026 may feel tough, with slower hiring and elevated unemployment. Flexibility, upskilling (especially in AI-complementary areas), and watching policy developments will be key.
Businesses, meanwhile, might continue playing it safe until clarity emerges on trade and immigration.
Overall, 2026 looks like a year of transition—one where policy shocks and technological shifts create bumps, but underlying supports could steer the economy back toward growth. We'll be watching closely as the new year unfolds.