Question #3 for 2026: What will the unemployment rate be in December 2026?

Earlier I posted some questions on my blog for next year: Ten Economic Questions for 2026. Some of these questions concern real estate (inventory, house prices, housing starts, new home sales), and I posted thoughts on those in the newsletter (others like GDP and employment will be on this blog).

I’m adding some thoughts and predictions for each question.

Here is a review of the Ten Economic Questions for 2025.

3) Unemployment Rate: The unemployment rate was at 4.6% in November, up from 4.2% in November 2024. Currently the FOMC is projecting the unemployment rate will decrease to the 4.3% to 4.4% range in Q4 2026. What will the unemployment rate be in December 2026?

Click on graph for larger image.

The unemployment rate is from the household survey (CPS), and the rate increased in November to 4.6%, up from 4.2% in November 2024. An unemployment rate of 4.6% over the next few months might suggest an employment recession according to the Sahm rule.

Forecasting the unemployment rate includes forecasts for economic and payroll growth, and also for changes in the participation rate (previous question).

“Uncertainty” was the key economic word for 2025, and probably for 2026 too. There is significant uncertainty in the labor market with signs of weak hiring and concerns that AI will impact job growth. Sometimes an employment recession continues as some employed individuals become cautious. At the same time, we should see some economic boost from fiscal policy in 2026.

It appears that the participation rate will decline in 2026 based on demographics and that population growth will be slow due to less net migration. That suggests that the labor force will grow slowly in 2026. So even if job growth stays slow in 2026 (next question), the unemployment rate might stabilize or even decline.

However, my guess is the unemployment rate will be in the mid-to-high 4% range in December 2026.

Here are the Ten Economic Questions for 2026 and a few predictions:

• Question #3 for 2026: What will the unemployment rate be in December 2026?

• Question #4 for 2026: What will the participation rate be in December 2026?

• Question #5 for 2026: What will the YoY core inflation rate be in December 2026?

• Question #6 for 2026: What will the Fed Funds rate be in December 2026?

• Question #7 for 2026: How much will wages increase in 2026?

• Question #8 for 2026: How much will Residential investment change in 2026? How about housing starts and new home sales in 2026?

• Question #9 for 2026: What will happen with house prices in 2026?

• Question #10 for 2026: Will inventory increase further in 2026?