Yahoo Finance

Key Takeaways

• The unemployment rate is expected to be fairly stable in the next year, according to economists.
  

• A steady job market would be a change of pace from the roller coaster of the pandemic and post-pandemic era.
  

• The unemployment rate is currently at 4.2%, not high by historic standards but above the 50-year low of 3.4% it hit last year.
  

Unemployment is a bit more common than it was a year ago, and forecasters are split about whether it will improve or worsen in 2025.

The unemployment rate is expected to rise slightly next year, to 4.3% at the end of the year, up from 4.2% in November, according to the median forecast of experts surveyed by the Federal Reserve Bank of Philadelphia.

By comparison, that’s the same unemployment rate the U.S. had during the summer and is not high by historical standards. In other words, economists don’t see a boom or a bust on the horizon; they expect the market to chug along more or less the same way it is now.

A Stable Job Market Would Be a Change of Pace

A stable job market would be a change of pace from the wild ride of the past few years. At the outset of 2020, workers were in high demand and the unemployment rate was flirting with a 50-year low. Then the pandemic hit, sending the jobless rate into the double digits. Unemployment rapidly fell as the economy reopened, and by January 2023, the unemployment rate hit 3.4%, its lowest since 1969.

Not coincidentally, the Federal Reserve began a campaign of interest rate hikes in March 2022, hoping to subdue rapid inflation by raising borrowing costs on all kinds of loans and slowing the economy. Fed officials had feared the hot job market could set off a spiral of wage hikes and price increases, leading to out-of-control inflation.

Economists once feared that the Fed’s rate hikes in 2022 would cause a recession and a surge in unemployment, but the economy has remained resilient. Still, some forecasters expect those high rates, which push up borrowing costs on all kinds of loans, to drag down job creation in 2025.

Economists at Vanguard predict the unemployment rate will rise to 4.4% in 2025, the highest level since October 2021. Before the pandemic, unemployment that high was last seen in 2017.

Economists at the University of Michigan made a similar forecast, noting that the unemployment rate appeared to be on a slow upward trend in the second half of 2024 and called for it to peak at 4.4% in 2025 before starting to decline.

Goldman Sachs forecasters were more optimistic, forecasting that the unemployment rate would fall to 3.9% by the end of 2025.