Weekly Economic Trends and Indicators

The Headline:

Last week, the Bureau of Labor Statistics (BLS) reported that nonfarm payroll employment increased by 130,000 in January, which was well above expectations. November and December payroll employment was revised down by a combined 17,000. January is also when the benchmark revisions for all of 2025 are released. Prior to the benchmark revision, the payroll employment growth was estimated at 584,000. This was revised downward by 403,000 to 181,000.

The national unemployment rate was 4.3% in January, little changed since December and up from 4.0% last January. Long-term unemployment, the labor force participation rate, and the employment-population ratio were all little changed.

The Details:

Employment growth was concentrated in only a few sectors, with others essentially unchanged or lower. The largest gain, as it has been frequently over the last year, was in health care (+81,900). The other large contributors were social assistance (+41,600), professional and business services (+34,000), and construction (+33,000). Sectors losing more than 10,000 jobs in January were transportation and warehousing (-11,200), information (-12,000), financial activities (-22,000), and government (-42,000). Federal government accounted for 34,000 of the 42,000 jobs lost across all levels. State government was down 18,000, and local government was up 10,000.

The Context:

In light of the large downward revision of 2025 payroll employment, some analysts expressed skepticism over the January number. The ADP Employment Report showed an increase of only 22,000 jobs in the private sector in January. Together with the loss of government jobs, this would imply essentially flat total employment growth. The ADP report also indicated an overall loss of 18,000 jobs in large firms (500+ employees).

As we pointed out last week, preliminary data is subject to revision, and ongoing structural changes in the economy have increased the uncertainty in the early numbers. We often hear about changes in labor demand brought about by adoption of AI and other factors. There is little doubt that some of the soft numbers in the labor market are related to demand. However, we cannot ignore the supply side of the labor market either.

We used to expect between 100,000 and 200,000 new jobs per month. 2024 was on the low side of that with 121,000 on average. However, lower real wage growth and changes in net immigration in 2025 and continuing into 2026 are pushing that number down. How much average monthly job growth we should expect is still a topic of debate, but as retirements accelerate, that number will certainly dip below 100,000 per month and possibly lower than 50,000 per month. This is a long-term demographic issue that will result in adjustments to our expectations of the labor market over the months and years to come.

Next week: Inflation update