The labor market cooled during a rollercoaster year for the economy and financial markets, and 2026 should start off slow but then improve later in the year, according to JPMorgan.<\/p>\n
In a forecast published earlier this month<\/a>, economists at the bank attributed 2025\u2019s loss of jobs momentum to business uncertainty created by President Donald Trump\u2019s tariffs and trade policies. <\/p>\n \u201cAs a result both long-term and short-term business planning has remained difficult, and layoff and hiring rates have been low,\u201d Michael Feroli, chief U.S. economist at JPMorgan, said in the report. \u201cBusinesses are hesitant to make sweeping changes to either grow or shrink their payrolls when they\u2019re unsure what the next six months might hold.\u201d<\/p>\n In addition, Trump\u2019s immigration crackdown and deportation campaign have been more aggressive than expected, JPMorgan added.<\/p>\n This reduced supply of workers plus the relatively flat labor participation rate flat mean that the monthly job gains needed to keep unemployment steady could tumble to just 15,000 from 50,000. Despite the lower breakeven rate, unemployment will creep higher.<\/p>\n \u201cThe first half of 2026 will likely deliver uncomfortably slow growth in the labor market, with unemployment peaking at 4.5% in early 2026,\u201d JPMorgan said, a week before the Labor Department released the delayed November jobs report that showed the rate climbing to a four-year high of 4.6%<\/a>.<\/p>\n The bank blamed sluggish growth due to the labor supply shrinking from deportations, an aging population and fewer visas for workers and students.<\/p>\n Another factor in the early-2026 slump is artificial intelligence, which has spurred massive investment in equipment, software and data centers\u2014but not so much job creation.<\/p>\n While there are still no signs yet of widespread job losses because of AI, some of the sectors most exposed to the technology have seen slower gains, JPMorgan pointed out.<\/p>\n But then the labor market will reverse course in the second half of the year, economists predicted, citing a more consistent tariff policy, tax cuts from Trump\u2019s One Big Beautiful Bill Act, and additional rate cuts from the Federal Reserve.<\/p>\n \u201cWe believe supports are coming together that will arrest this labor market slowdown and revive activity growth later next year,\u201d Feroli said.\u00a0<\/p>\n JPMorgan sees GDP growth in 2026 at 1.8%, with one-in-three odds of a recession, and inflation remaining sticky at 2.7%.\u00a0<\/p>\n Separately, Bank of America\u00a0CEO Brian Moynihan expects Trump to de-escalate trade tensions next year<\/a>, telling CBS News\u2019\u00a0Face the Nation\u00a0that an average tariff rate of 15% for a broad group of counties is \u201cnot a huge impact.\u201d<\/p>\n Meanwhile, AI could be a wildcard that provides yet another boost next year.<\/p>\n \u201cUsually, it takes several years for general purpose technologies like AI to boost productivity,\u201d Feroli added. \u201cA quicker realization of efficiency gains could lead to stronger GDP growth than expected.\u201d<\/p>\n But that optimism contrasts with continued warnings from computer scientist and \u201cgodfather of AI\u201d Geoffrey Hinton, who has said AI will replace more and more human workers<\/a>.<\/p>\n