A recruiter displays information while talking to a job applicant at the WorkSource North Seattle Career Fair on Tuesday, February 10, 2026 in Seattle, Washington, USA.
David Ryder Bloomberg | Getty Images
Job gains in January were better than any for the U.S. economy in 2025, but still not enough to fully unravel a stagnant labor market.
The numbers suggest that while layoffs appear to be contained, hiring is at least stemming, as nonfarm payrolls rose by 130,000 and the unemployment rate fell to 4.3%, the lowest since August.
However, there were some problems within it. It’s about staying focused on just a few areas where hiring is happening. There are also questions about what the future holds as companies grapple with high levels of uncertainty and revisions that mean there will be virtually no profits in the second half of 2025.
“We expect job growth to be quite subdued for the rest of the year,” said Gregory Daco, chief economist at EY Parthenon. “Whether it will be as subdued as it is in 2025 is still an open question. But we would not expect job growth to exceed 50,000 jobs for the remainder of 2026.”
In fact, employment increased by just 15,000 jobs a month last year, according to a revision released Wednesday by the Bureau of Labor Statistics. Net employment fell by 1,000 jobs in the last six months of the year. In the recent words of Federal Reserve Chairman Christopher Waller, job growth this year has been close to “zero, zip, nada.”
Also, nearly all of the jobs in January were in the health-related sector, raising questions about the availability of job departures and new workers.
In addition to increased anemia, octopuses have other concerns. He sees the problem as a setback in income growth for cash-strapped consumers, potentially causing damage that is not easily visible in major economic indicators.
Average hourly wages rose 0.4% in January, slightly above expectations, but the 3.71% annualized increase was the slowest since July 2024. That could signal a potential danger, as retail sales were unexpectedly flat in December, with consumer spending accounting for more than two-thirds of all economic activity in the United States.
“We’re going from expanding unemployment to potentially expanding without income, because income is essentially a combination of work and wages. With both under pressure, that means the outlook for income and income growth is muted for many households,” Daco said.
questions for the future
So, while the monthly numbers are good, it remains to be seen whether they are an outlier or whether they will rise further. In the end, each month in 2025, the initial forecast was revised negative.
The announcement comes as other economic indicators also look solid. Gross domestic product, the broadest measure of growth, is on pace to post a solid 3.7% increase in the fourth quarter through 2025, after increasing 4.4% and 3.8% in the two quarters ending in 2025, according to the Atlanta Fed.
But Rick Rieder, BlackRock’s chief investment officer for fixed income, said it will be difficult to sustain that kind of growth without job growth.
“One important warning sign is that in past cycles, this kind of GDP growth has required more jobs than usual. The fact that employment is slowing while growth is rising could potentially be an early sign of a productivity boom that is expected to continue,” Rieder said in a note. “Sectors such as health care remain labor-intensive, but the more interest-sensitive parts of the economy, especially lower-income groups, are clearly still under pressure.”
The relationship between the state of the labor market and inflation is a policy challenge for the Fed, and there is already significant disagreement over how to proceed.
Most recently, Dallas Regional President Laurie Logan and Cleveland Regional President Beth Hammack said Tuesday that they don’t see a need for further rate cuts because inflation remains above the Fed’s target and the labor market is stable. As voters on the Federal Open Market Committee, which decides this year’s interest rate setting, their position is at odds with Waller’s push for further rate cuts, and a position shared by Fed Chairman nominee Kevin Warsh.
“I think the Fed has room to move a little closer to the median expected neutral policy,” EY’s Darko said. “I don’t necessarily think that will happen…partly because the majority of Fed policymakers are more focused on inflation obligations than employment obligations.”
Meanwhile, markets said on Wednesday that calls for interest rate cuts in the near term will wane after January’s jobs report. According to CME Group’s FedWatch tracker, trading is pricing in a roughly 6% chance of a rate cut in March, with two more rate cuts still expected before the end of the year.
