U.S. Employers added 130,000 jobs in January, a figure that exceeded expectations and offered a surprising boost to a labor market that has shown signs of cooling. The unemployment rate fell to 4.3%, down from 4.4% in December, according to data released Wednesday by the Bureau of Labor Statistics.
The stronger-than-anticipated job growth – well above the Dow Jones consensus estimate of 55,000 – is likely to recalibrate expectations regarding the Federal Reserve’s monetary policy path. As noted by WSJ Fedwatcher Nick Timiraos, the report “cements the Fed’s extended pause on interest rates.” Federal Reserve Chair Jerome Powell recently acknowledged the economy’s unexpected strength, stating on January 28th, “The economy has, once again, surprised us with its strength—not for the first time.”
However, the January report also included significant downward revisions to prior employment data. The Bureau of Labor Statistics revised down job creation figures for 2024 and 2025, reducing the total number of jobs added by 898,000. This means that job growth last year was far weaker than initially reported, totaling just 181,000, a third of the previously reported 584,000 and the weakest since 2020.
Despite the revisions, the January data provided a welcome counterpoint to recent indicators that had signaled a slowdown. The positive result came as a surprise given recent misses in other employment metrics, including the ISM services index, ADP employment report and JOLTS job openings data. The initial market reaction was choppy, with fluctuations in currency pairs reflecting the uncertainty surrounding the implications of the report.
The Australian dollar initially fell but quickly recovered, rising to 0.7117. The Japanese yen experienced a similar pattern, briefly strengthening before returning to previous levels. The Euro and British pound both saw modest declines, falling to 1.1863, and 1.3647 respectively, though these movements were smaller than anticipated given the headline figures.
The gains in January were heavily concentrated in specific sectors. Healthcare led the way, adding 82,000 positions, accounting for more than 60% of the total job increase. Social assistance also saw substantial growth, adding 42,000 jobs, while construction contributed 33,000. Conversely, the federal government shed 34,000 jobs. Manufacturing added 5,000 jobs, breaking a streak of 13 consecutive months of losses.
Average hourly wages rose by 0.4% in January, indicating continued, albeit moderate, wage pressure. The decline in the unemployment rate, coupled with the wage increase, suggests a degree of resilience in the labor market despite broader economic headwinds.
The broader measure of unemployment, which includes discouraged workers and those employed part-time for economic reasons, also edged down to 8%, a decrease of 0.4 percentage points from December. This suggests a slight improvement in labor force participation and a reduction in underemployment.
The report’s release was delayed nearly a week due to the recent partial government shutdown, adding to the anticipation surrounding the data. The delay also contributed to the initial market volatility as investors digested the information.
The January jobs report presents a complex picture. While the headline number is undeniably positive, the substantial downward revisions to prior data raise questions about the underlying strength of the labor market. The concentration of job gains in healthcare and social assistance also suggests that certain sectors are driving the growth, while others continue to struggle.
The Federal Reserve will likely take note of the report, but the downward revisions and the ongoing uncertainty surrounding the economic outlook suggest that policymakers will remain cautious. The probability of a rate cut in June has decreased to 76% following the release of the data. Treasury yields rose 4-7 basis points across the curve, reflecting the reduced expectation of near-term monetary easing.
The S&P 500 futures rose 0.6% in pre-market trading, indicating investor optimism following the report’s release. However, the long-term implications of the data remain to be seen, and further economic indicators will be needed to assess the true state of the U.S. Labor market.
The difficulty of seasonally adjusting the data in January was also noted by some analysts, suggesting that the reported gains may be partially attributable to statistical factors. However, even accounting for these factors, the January report represents a significant improvement over recent trends.
