The economy added 130,000 jobs in January and the unemployment rate ticked down to 4.3%, the Bureau of Labor Statistics said Wednesday in a report that was delayed by the brief government shutdown last week.
Forecasters had expected the unemployment rate would hold at 4.4%, and for job growth to total 66,000.
The interpretation
“It’s somewhat of a surprise, we’re showing strength, particularly in healthcare and manufacturing — but from a longer term view, what I’d have to say is this is one data point,” Brian Marks, executive director of the University of New Haven’s Entrepreneurship and Innovation Program, told the Washington Examiner.
Marks said that the report could give ammunition for the Fed to hold interest rates steady once again at its next meeting in March, but that other data, including another jobs report, will also be considered by the central bank. He also pointed out downward revisions from past reports.
“So I’d say we’re still treading water, and the next data point is what’s going to be important for the Fed as it looks at the entire trend,” Marks said.
What it means…for Trump
Wednesday’s report showed a break in the trend of slowing job growth and rising unemployment, which posed a threat to President Donald Trump’s approval ratings, which are already low on the economy.
There are two major reasons, also, to think that the underlying health of the economy is stronger than the headline number would make it seem.
The first is that many of the job losses over the past year have taken place in the federal government, thanks to the Trump administration’s efforts to remove federal workers, including through the Department of Government Efficiency. Private-sector employment has been stronger.
The second is that some of the slowdown in hiring is attributable to Trump’s immigration policies, which have massively slowed net migration into the country and may even have turned it negative.
While lower immigration rates slow the growth of the workforce, they might not entail rising unemployment, since a decline in immigrant labor would also shrink the denominator of the unemployment rate.
What it means for…the Fed
Wednesday morning’s surprisingly strong report led investors to very slightly decrease the odds that Federal Reserve officials will cut their interest rate target at their next meeting, scheduled for mid-March.
Trump has pressed for months for Chairman Jerome Powell to lower rates to boost borrowing and spending.
He has nominated Kevin Warsh, a former member of the Fed’s board of governors, as a replacement for Powell when his term as chairman ends this spring.
The underlying reality
Wednesday’s report showed that hiring may have picked up to start the year.
It is helpful to look at the overall trend for the labor market. With revisions to the numbers for November and December, the three-month moving average of job gains was 73,000 in January.
Roughly 114,000 new payroll jobs are needed each month to keep unemployment from rising – the “breakeven rate” of job growth – according to one estimate from the Federal Reserve Bank of Atlanta.
But that figure is highly uncertain, thanks to the Trump administration’s crackdown on illegal immigration. The breakeven rate might be closer to zero if net migration has stalled, and it might even be negative if more people are leaving the country than entering.
Prime-age employment, relative to the overall population, is strong by historical standards. It rose in January.
Recession watch
The unemployment rate, taken from the jobs report’s household survey, is still low by historical standards, although it has been drifting upward. It fell a tenth of a percentage point to 4.3% in January.
Recessions entail a rising unemployment rate.
Wednesday’s data suggests that the U.S. labor market is moving away from triggering one major recession indicator — namely, when the three-month moving average of the unemployment rate rises half a percentage point relative to its minimum point over the past year. This indicator, known as the Sahm Rule, had signaled the start of all post-war recessions.
The indicator had been triggered in mid-2024, but is not signaling a recession right now.
What’s happening with federal government employment
Federal government employment fell by 34,000 in January. It has been declining in recent months, and plunged in October thanks to the end of the “deferred resignation” promoted by the Trump administration at the end of September. Federal employment is now down about 324,000 since Trump came into office. The number of federal employees is a key statistic to watch to see the effects of the budget-cutting efforts of the Trump administration and the Department of Government Efficiency.
