US Job Market 'Great Freeze' May Break in 2026

The US job market has remained stagnant throughout 2025, defined by a low-hire, low-fire environment often referred to as the 'Great Freeze.' Experts suggest this trend is not sustainable and predict a significant shift in 2026. Claudia Sahm, chief economist at New Century Advisors, warns that the market is heading into a 'moment of reckoning' driven by economic uncertainty, including the effects of tariffs.

Two main outcomes are anticipated. The optimistic scenario involves uncertainty lifting, allowing hiring to stabilize and return to a more typical labor market. Conversely, the pessimistic scenario suggests a potential recession where hiring freezes lead to mass layoffs. While current layoff rates remain low, CEO sentiment indicates a softening in hiring plans. Ultimately, market fluidity is expected to increase as companies address workforce attrition.

The US job market has been stuck in a low-hire, low-fire state, partly due to businesses navigating economic uncertainty, such as the impact of tariffs. Claudia Sahm, chief economist of New Century Advisors, believes the market could be heading into 'a moment of reckoning' this year. She argues that the current stagnation is unsustainable, particularly as workers retire and companies need to address attrition.

Sahm outlines two diverging paths for the labor market in 2026:

• Recessionary downturn: Hiring slows significantly, leading to a situation where 'the bottom falls out,' involving widespread firings and a recession.
• Stabilization: Economic uncertainty lifts, leading businesses to pick up hiring, stabilize the market, and return to a labor market focused on adding workers.

If layoffs increase, millions of job seekers would face heightened competition. However, if hiring picks up across multiple sectors while layoffs remain low, it would be positive news for unemployed Americans.

Some economists remain optimistic, predicting that the hiring logjam could finally lift in 2026. Independent economist Aaron Terrazas notes that while businesses were 'paralyzed' by uncertainty in 2025, he expects an uptick in job creation. He believes uncertainty will subside as the Trump administration enters its second year, with investment provisions from the 'One Big Beautiful Bill'—signed into law in July—yielding dividends in terms of projects and hiring in the first half of the year.

Small business owners share this desire for clarity. Michael Salvatore, a Chicago-area hospitality business owner, stated, 'Especially as a small-business owner, the unknown makes it impossible to have a vision that you can execute on.'

Supporting this view, a September survey by ZipRecruiter found that 63% of employers expect to hire more moderately or significantly over the next year. Furthermore, Laura Ullrich of the Indeed Hiring Lab notes that the probability of getting laid off remains 'pretty low,' with the layoff rate hovering at or just above 1% in 2025, below the historical average of 1.4%.

Despite low layoff rates, top executives have signaled that a hiring boom may not materialize. The fourth-quarter survey from the Business Roundtable revealed that more CEOs expect no change or a decrease in employment than those expecting growth. Joshua Bolten, CEO of the Business Roundtable, stated, 'Notably this quarter, more CEOs plan to reduce employment than increase it for the third quarter in a row — the lowest three-quarter average since the Great Recession.'

These softening hiring plans reflect an uncertain environment where AI is driving productivity gains while tariff volatility increases costs. Chris Martin, lead researcher at Glassdoor, acknowledges a chance that 'things get worse,' noting that while bad outcomes haven't happened yet, the market must eventually break from its current state.

The Indeed Hiring Lab report suggests the question for 2026 won't be whether the market thaws, but 'whether it cracks.' The healthcare sector, which largely supported US job growth in 2025, remains a key variable; if hiring there slows, overall unemployment could rise.

Regardless of whether the outcome is positive or negative, experts agree that the 'Great Freeze' cannot last. Chris Martin of Glassdoor states, 'At some point, something has to happen.' He predicts that even if the bottom doesn't fall out, the market will likely return to a 'more typical labor market' with a slight uptick in fluidity dynamics—more quits, hires, and fires compared to the current low levels.

Sahm emphasizes that companies cannot simply stop hiring forever. As workers retire, businesses must bring in new talent to grow. The current environment of correcting overhiring from the pandemic era is temporary. The 'most probable outcome' according to the Indeed report is an extension of the current slow, selective market, rather than a dramatic break. However, the pressure to return to growth will eventually force the freeze to break.