Sluggish private hiring may support more cuts – but Friday’s jobs data will be key
December’s private payrolls data pointed to a weaker‑than‑hoped end to 2025, adding to evidence of a cooling labor market that mortgage professionals have been tracking closely for its impact on rates.
Private employers added 41,000 jobs in December, reversing November’s decline but undershooting expectations and underscoring how fragile the recovery in hiring has become.
The gain, drawn from ADP’s anonymized payroll records for more than 26 million workers, fell short of forecasts in the high‑40,000 range.
While the numbers offered some relief after repeated declines in private payrolls, they also reinforced the picture of a labor market that had stalled into year‑end rather than re‑accelerated.
Small firms carry the load as big employers hesitate
Hiring came almost entirely from service industries and smaller companies. Education and health services added 39,000 roles, while leisure and hospitality contributed 24,000.
Trade, transportation and utilities added 11,000 positions, and financial activities gained 6,000.
Offsetting that, professional and business services cut 29,000 jobs and information services lost 12,000.
Goods‑producing sectors collectively shed 3,000 jobs, driven by a 5,000 decline in manufacturing.
Nearly all the net gains came from firms with fewer than 500 workers, with large employers adding only 2,000 roles.
“Small establishments recovered from November job losses with positive end-of-year hiring, even as large employers pulled back,” said ADP chief economist Nela Richardson.
Annual pay growth for job‑stayers held at 4.4%, while job‑changers saw 6.6%, suggesting wage pressures continued to cool without collapsing.
What it could mean for the Fed and for mortgage rates
For markets, the softer‑than‑expected rebound is another data point reinforcing that the labor market has lost momentum. Earlier sharp ADP drop warned that small businesses were ‘starting to crack,’ a sign of fragility that aligns with deteriorating hiring trends across the second half of the year.
Mortgage investors have repeatedly reacted to weak labor readings by nudging yields and rates lower.
The Fed, which ended 2025 with a series of hawkish cuts aimed at supporting a softening job market while signaling caution on inflation, has stressed its path is data‑dependent.
Federal Reserve governor Stephen Miran urged over 100 basis points of rate cuts in 2026, arguing policy remains restrictive, while Neel Kashkari of the Minneapolis Fed and Anna Paulson of the Philadelphia Fed signaled a more cautious approach.https://t.co/ibq3k1Mosc
— Mortgage Professional America Magazine (@MPAMagazineUS) January 6, 2026
Sam Williamson, senior economist at First American recently said he expects “one, perhaps two” cuts in 2026, contingent on incoming employment and inflation figures.
A modest ADP beat might have argued for a pause; instead, December’s underperformance will likely be cited by doves arguing there is room to ease further if Friday’s Bureau of Labor Statistics report also disappoints.
For mortgage rates, that sets up another “labor over inflation” moment: a weaker‑than‑forecast nonfarm payrolls print and any uptick in unemployment would strengthen the case for additional Fed easing and could pull Treasury yields – and with them, mortgage rates – lower.
However, if the official data come in stronger, December’s ADP reading may again be remembered as an outlier rather than a turning point.
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