Research Analyst
The January jobs report usually features as much noise as news. Annual benchmark revisions, updated seasonal factors and a new birth-death model often distort January’s data, and this time was no exception. Reading the tea leaves, however, the details were solid and consistent with our outlook for a pick-up in growth in 1H26.
In the details:
- A weaker 2025 but solid start to 2026: Nonfarm payrolls rose by 130k, above expectations for 65k. Despite winter storms later in the month, mild weather during the survey week may have modestly biased this print higher. Only 291k workers reported working part-time due to bad weather, the fewest in any January since 1986. Elsewhere, the annual benchmark revision removed 862k jobs from March 2025 payrolls on a non-seasonally adjusted basis, marking the largest downward revision since 2009. Job growth in 2025 was also revised lower: just 15k jobs were added per month last year post-revisions versus 49k pre-revisions. However, the three-month moving average of total payroll growth accelerated to 73k from -17k as the sharp decline in October employment (driven by a drop in federal government employment) rolled out of the calculation. For private payrolls, the three-month average accelerated to 103k from 50k.
- Both services and goods sectors grow payrolls: More sectors added jobs this month compared to last as the payroll diffusion index rose to 55.0 from 54.2. Private payrolls were responsible for all this month’s job growth, rising by 172k. Service sectors added 136k jobs, with health care and social assistance (+124k) driving most of those gains. Goods sectors added 36k jobs due to a pick-up in construction employment (+33k). Government employment was the largest drag (-42k), as federal employees who accepted the referred designation offer continued to roll off payrolls.
- Unemployment rate falls for second straight month: The unemployment rate fell nearly 10bps to 4.3% (4.28% unrounded) as the number of unemployed persons dropped by 141k despite a 387k rise in the labor force. Updated Census Bureau population estimates, to be incorporated into the BLS data in the February report, show that the population could grow just 0.2% in 2026. This suggests that, unless the economy unexpectedly hits the brakes hard, sluggish labor force growth should keep the unemployment rate from moving much higher.
- Wage growth holds steady: Total private wages rose 0.4% m/m and 3.7% y/y, although December wage growth was revised down to 0.1% m/m. The average workweek ticked up to 34.3 hours.
Despite statistical distortions, this report showed a labor market with decent momentum heading into 2026. As fiscal stimulus kicks in and boosts consumer spending, hiring could also pick up in 1H26. Moreover, as mentioned above, sluggish labor supply growth should help cap the unemployment rate. All this limits the need for early Fed easing, giving policymakers more time to assess the inflationary impacts of tariffs. In our view, the FOMC is poised to deliver two or fewer rate cuts in the latter part of 2026.