US employers added more jobs in January than expected, a rare positive surprise after months of subdued employment and easing fears the labor market would slide into a prolonged downturn.
Payrolls rose 130,000 in the last month, which was significantly higher than economists’ expectations. The unemployment rate also decreased to 4.3%. According to government data released Wednesday, experts expect a pause in Fed rate cuts.
The figures are compared to forecasts of approximately 55,000 to 65,000 jobs and an unemployment of around 4.4%.
Along with the headline surprise, benchmark revisions for each year painted a much weaker view of recent labour market performance.
According to updated estimates, the US economy will add only 181,000 jobs by 2025. This is a far cry from the 584,000 previously reported.
Even so, the stronger-than-anticipated report lifted market sentiment.
Futures on the S&P 500 rose about 0.4%. Nasdaq 100 also rose 0.4%.
Investors reassessed growth and interest rate expectations, which led to a 163-point gain, or 0.3%.
The yield on the US Treasury 10-year note increased by nearly 5 basis points to 4.19%.
Rebound after a fragile phase
The better than expected data suggests that the labour market is emerging from a prolonged period of weakness, driven by a combination between trade tensions and tighter immigration policies.
These factors made employers cautious in expanding payrolls, even though layoffs were relatively few.
The latest report was also released against a background of muted expectations.
In the days before the release of the report, several White House officials signaled that the job growth could be weaker than the consensus forecasts. This helped to shape market positioning towards a softer result.
White House senior advisor on trade had told Fox News that “we have to significantly revise our expectation down for what a month’s job number should look.” This was a hint at low expectations, and an attempt to downplay the importance of the data.
Seema Sha, Chief Global Strategist, Principal Asset Management, said that the figures today paint a resilient image of the US labour markets.
Shah noted that “While some have advised caution, Kevin Hassett’s ‘don’t panic’ caveat appears to be largely unnecessary given today’s jobs data.”
“This was not an inferior print; it was very strong, even after accounting for the noise that was likely embedded in the data.”
Gains in employment at the federal government while healthcare-related jobs are on the rise
The job gains were concentrated within a few sectors, highlighting the uneven momentum throughout the economy.
The health care sector led the job growth in January, adding 82,000 new jobs. This includes gains in hospitals, nursing and residential care facilities, and ambulatory care services.
Construction and social assistance both saw notable increases.
The federal government’s employment continues to decline. It has fallen by 34,000, as deferred resignations for 2025 continue to weigh on payrolls.
Since October 2024 when federal employment peaked, it has dropped by over 327,000, or nearly 11%.
The decline in employment in financial activities is also a sign of the persistent pressure on certain sectors of the service sector, despite growth in other industries.
Revisions complicate a picture
Along with the headline surprise, benchmark revisions for each year painted a much weaker view of recent labour market performance.
According to updated estimates, the US economy will add only 181,000 jobs by 2025. This is a far cry from the previously reported 584,000.
The revisions highlight how fragile the hiring climate has been, despite January’s data indicating a tentative improvement.
Economists say that the combination of stronger current data and weaker historic data makes it difficult to assess the true underlying movement of the labour market.
The broader indicators of the labour market also point to persistent slack.
In January, the unemployment rate and number of unemployed Americans remained unchanged at 7.4 million.
The long-term unemployment rate remained at 1.8 million, but was still significantly higher than it was a year ago. It accounted for a quarter all unemployed workers.
The case for a Fed rate reduction is thin
The Federal Reserve will likely be influenced by the January report as they decide when to reduce interest rates.
The stronger data on jobs could give policymakers the room to extend the pause that began last month in the easing process when the central banks meet again in March.
In recent weeks, Fed chair Jerome Powell and others have described the labour markets as stabilising. This has given a more positive tone to the economic outlook.
The latest figures seem to support this narrative and could strengthen the hand of those policymakers who are hesitant to ease too aggressively due to lingering inflation risk.
“The case for imminent Federal Reserve rates cuts looks thin ,” said Shah.
The labour market will not convince Kevin Warsh that he should ease policy in his first meeting, she said. “Without a clearer deceleration of inflation, he will not be able to make this case,” she said.
Susannah Streeter is Chief Investment Strategist at Wealth Club. She echoed this view. The analyst said the strong print “has dampened hopes slightly that a super-easy road ahead for interest rate cuts is on the horizon.”
Streeter said that stocks focused on the health of the US economy will likely see gains. However, a more negative reaction could be seen in the tech sector, which is already experiencing AI anxiety.
Trends in participation and underemployment
The labor force participation rate remained at 62.5%, while the employment-population ratio held at 59.8%, showing little movement over the past year.
These stagnant metrics indicate that the labor market is not fully dynamic despite the headline increase of payrolls.
The underemployment signal was mixed.
The number of people who work part-time for economic reasons dropped by 453,000 to 4.9 millions in January, indicating an improvement in the quality of jobs, although it is still higher than one year ago.
The rate of teenage unemployment has declined to 13.6%. However, disparities between worker groups have persisted. This highlights the uneven progress made across demographics.
This post US jobs report surprises as 130,000 new hires in January as hopes for rate cuts fade may be modified with updates.
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