Huge employment report: US added 130,000 jobs in January

[00:00:00] Julie Hyman: Good morning and welcome to Yahoo Fund. It's a special coverage of the January jobs report. I'm Julie Hyman. We are seeing futures push a little bit higher. Of course, everything could change after this report. Let me run you through the expectations here in terms of nonfarm payrolls and the change that we are looking for here. 65,000 is the average estimate on the part of economists. That would be a little bit of an uptick from the 50,000 that we saw in the increase in December. So that's a number we're going to be zeroing in on. We'll, of course, be zeroing in on the unemployment rate, which is predicted to remain steady at 4.4%. And as always, we take a look at the average hourly earnings as well, predicted to, again, remain steady with a gain of 0.3%. But this jobs report, it being the report for January, it has a little something extra, the benchmark revisions. We're going to come out and revise the numbers for not just the prior year, but sort of the prior year minus a little bit. So this benchmark revision will affect April 2024 to March of 2025, that entire period. Last September, BLS came out and said they had actually overcounted the amount of jobs in that period by 911,000. Now they'll come out with a revision to that revision today. And the consensus estimate is that it will actually have been an overcount by 825,000. In other words, the amount of jobs in that time was actually 825,000 lower than the initial estimates. Why does this happen? Is it some big conspiracy theory? No. It's just because there are different surveys that track this. And so they put all the surveys together and try to smooth out the numbers in various ways and try to get a more accurate read. So we're looking for that number even as we are looking for non-farm payrolls as well in what looks to be a weakening job market. So this number is going to get a lot of attention. So we're waiting for those numbers to come up here. I'm starting to see some of that 130,000. 130,000. So almost double the expectation. Much stronger job number coming out for the month of January. 130,000 versus the 65,000 that was estimated. The unemployment rate ticking down to 4.3% from 4.4% here. We do have a downward revision, it looks like, in payrolls. So that's something to keep an eye on. A downward revision of 76,000 for the prior two months. We don't yet have that benchmark revision number. So I'm going to keep an eye on that to see what it looks like. And actually, I average our 862,000. There we have it. 862,000 was that benchmark revision. So I was just talking about this affects the overall jobs numbers from April 2024 through March of 2025. The initial read from BLS is that they had overcounted that by 911,000. Now they're saying they overcounted it by 862,000. So that's very backward looking, but just gives us an idea of how much the job market was already weakening going into, say, Liberation Day last year when we got those big tariff announcements. So again here, just to summarize what we have just learned, 130,000 jobs added to the U.S. economy in the month of January. That is almost double what had been estimated. That said, there was a downward revision in payrolls for the prior couple of months. The unemployment rate going down to 4.3% from 4.4%. And that benchmark revision to the prior period, 862,000 drop in jobs versus the initial read that we got there. Now we see futures extending their gains a little bit. There have been some expectation going to this report that if it was substantially weak, well maybe that would force the hand of Jay Powell even before he steps down as a chair of the Federal Reserve. This does not look like a report that is going to do that. But we are seeing futures up a little bit, but undoubtedly we'll see them bounce around a little bit as folks react to these numbers and parse through them. Let's get more interpretation and insight now. Joining me to break down the jobs report is Brian Jacobson, Annex Wealth Management Chief Economist and Strategist. Kathy Busjancic, Nationwide Chief Economist and Senior Vice President. And Kelsey Barrows here with me in the studio, JPMorgan Asset Management Fixed Income Portfolio Manager. Kelsey, you go first because you have the benefit of sitting with me here in the studio. What do you make of this? I mean, this is really surprising to me at least. I mean, everybody you talk to says low hire, no fire, or even no hire, no fire, and yet you see this kind of addition. [00:04:51] Speaker 2: So when I look at the totality of this data, I do still think that generally we're in a low hire, low fire environment. There was an expectation that you could see a little bit of heat in the January number that could somewhat be related to seasonals. But when you look at the three month and six month moving average, you know, those are still generally, you know, in the 50,000 range. I haven't updated my Bloomberg yet, but that's essentially kind of what we're looking at. Now, if I also take a step back, there's been a lot of uncertainty about what the break-even rate for the jobs market is. Because population growth is slowing due to immigration policies. [00:05:29] Julie Hyman: Can I pause you for just a second? What do you, explain to people what you mean by break-even rate. [00:05:33] Speaker 2: Yeah, so it's essentially what is the rate of job growth that keeps the unemployment rate steady. And so we don't know what that is. And so my suggestion would be, rather than focus on the inputs, so how much jobs are created, focus on the outputs. Is the unemployment rate remaining stable? That's your indication of how tight or loose the labor market is. And when you look at an unemployment rate here that has remained fairly stable, around 4.3%, that's telling the Fed that, you know, the economy and the labor market, while softening, are still within their control and they probably don't need to adjust policy in the very short term. [00:06:15] Julie Hyman: Kathy, I want to get you to weigh in on this. And I think, especially given some of the other types of private reports we got over the past week or so, and government reports, we got the JOLTS report, we got Challenger Green Christmas, we got some other jobs numbers. Against that backdrop, again, this seems like a surprising number. [00:06:33] Speaker 3: Yeah, Julie, it certainly exceeded expectations. In fact, the whisper number going into it, it would be even weaker than the consensus number. So this is a pleasant surprise on the labor front. But I would, you know, caution, there are a lot of adjustments to the data. We not only do we get that benchmark revision to kind of the prior year, you know, through March of 2025, but we also got birth, net death adjustments for businesses, business formation, that is not for individuals, but for formations for business. And that could affect the data, too. Those revisions go from April through December of last year. And then there's other seasonal factors applied on top of that. So it could be skewing the data a bit here. But I think when I look at the three month moving average for payrolls are up 73,000. That that's a good reading. And as you know, we were just talking about the break even rate, you know, we think it's about 50,000 for this year, given that you have the aging society and less immigration. So all told, the last three months, you know, firming employment. And that's what we had seen signs of before, to be honest. What you saw as a swoon in the labor market, particularly in the summer following, you know, Liberation Day, I think that really paralyzed companies and their hiring decisions. And now you're seeing a little bit of settling down, right? The uncertainty is still elevated, but we're past peak uncertainty. If you see some of the stimulus, fiscal stimulus coming in, I think we're going to see, you know, a moderately better labor market. Not one that's booming, but that one is firmer. [00:08:21] Julie Hyman: And just in case people are wondering where the job gains were coming from, they continue to come from healthcare. That has been such a consistent adder of jobs here. 82,000 jobs added in healthcare in January. We're going to get more details and dig into these numbers a little bit later on. Social assistance also higher by 42,000 in January. And construction actually adding 33,000 jobs. So that's interesting as well. Non-residential specialty trade contractors seeing a big gain there. I don't know if that's data center construction, if that falls into that category. We'll have to dig into that a little bit. But Brian, you weigh in on this, on all of this discussion here and your read on the report. [00:09:03] Speaker 4: Yeah, I think that really what it's showing, especially if we look at the pattern of the revisions, right? We actually started January 2025 with minus 48,000. Previously, it was reported to be positive 111,000. But then for all of 2025, it was just one shock after another. So we didn't start the year quite as strong as what we thought we did in terms of the labor market. And then piling on top of that all the uncertainty around you had the tariffs and then you had the government shutdown. It was actually a surprisingly resilient labor market. And I agree with Kathy where she's saying that maybe we're going to get some traction from here, right? We had good GDP numbers in the Q3, probably going to get a good Q4 GDP number. And that should hopefully pull the labor market along in its wake. So I'm actually viewing this as saying that, yeah, maybe the Fed should have not been on pause. But that's Monday morning quarterbacking, right? They had to go based on the data that they had. And now it says maybe they can afford to keep pausing. But maybe it does actually increase the possibility that they're going to start cutting a little bit sooner than June in my mind. [00:10:14] Julie Hyman: Well, it's interesting that you bring that up, Brian, because I was looking at some notes from Ed Yardeni, economist and strategist, before the report. And he said, you know, this was ahead of time. He said downside surprises could put pressure on Powell to back a rate cut later this month. But then he said this, even though we don't believe that the Fed can fix what ails the job market. Brian, what do you make of that statement? [00:10:38] Speaker 4: Oh, I think he's spot on correct that the Fed can't really do much to create jobs. They can create conditions, credit conditions, monetary conditions that are conducive to growth. [00:10:50] Julie Hyman: But are those monetary conditions and credit conditions the reason why job growth is not hotter right now? [00:10:57] Speaker 4: Well, I believe that the rapid tightening of policy coming out of the inflation shock is the reason why we have seen the labor market struggle. It wasn't because of chat GPT. It wasn't because of artificial intelligence. It was because of aggressive monetary tightening. And I think that's showing up in the data. It's what you would expect to happen when they go from 0% to above 5% on the policy rate. And we know that it does operate with some legs, but they then held the policy rate there probably for a little bit too long. And that probably did create the weakness in the labor market. Now we just have to deal with the hand that we've been dealt with, which is one where they maybe made a mistake there. But then again, we also had the policy shocks on the fiscal side with tariffs and the such. Thankfully, we did get the One Big Beautiful Bill Act passed that can create some business incentives. So looking forward, I think that the Fed, they're kind of close to a neutral rate. Maybe they're, you know, plus or minus 50 basis points of it. So I'm not sure there's much more that monetary policy can do to help the labor market. But instead, their philosophy should be maybe do no harm. [00:12:06] Julie Hyman: Kelsey, back to you here, speaking about the Fed. I think Fed funds futures are now pushing out when they think the next rate could happen, maybe to July from June. Do you think that's a reasonable expectation? And how is this going to ripple through fixed income markets, do you think? [00:12:24] Speaker 2: Yeah, I think that's a reasonable expectation. I'm also looking at the moves in the Treasury market. You have the 10-year yield up about five basis points right now, which I think is consistent with the magnitude of this upside surprise, particularly for January. But the market is still pricing in about 50 basis points of rate cuts for the balance of 2026. And I think that is reasonable. It's not only about the jobs market, but it's also about the potential progress that the Fed is going to make in terms of getting inflation back to target. Now, last year, they had a hurdle in terms of getting inflation back to target, which was the impact of tariffs. That tariff impact, we may still see it in the short term, but our expectation is the bulk of that tariff impact has already passed. And when we look at the service side of the economy, when you look at the wage data we got today, for example, the employment cost index that we got yesterday, and all of the information that we have on shelter inflation from primary rental data, that's all suggesting that there's still a broad disinflationary trend within the service economy. And that is another reason why the Fed may have motivation to gradually cut rates later this year, even if the unemployment rate remains stable around here and we don't see any further deterioration in the labor market. [00:13:46] Julie Hyman: Well, and Kathy, what Kelsey is saying also reminds me to once again zero in on that average hourly earnings number, which year-over-year was in line with estimates of 3.7% gain, but month-over-month actually ticked up a little bit. Although now I'm seeing actually there was a revision lower for the prior months. But I guess my overall question is, when you look at wage growth versus inflation, I mean, this is the thing that has really bedeviled the lower income cohort here in the United States. Are we going to start to see improvement for those folks this year? [00:14:18] Speaker 3: So it is definitely a bifurcated labor market. Now, the aggregate numbers you just quoted, 3.7% year-on-year for average hourly earnings, that's nominal. If you subtract out CPI, which is running 2.5%, you actually have real wage gains of over 1%. And we've seen that for a while. But because the economy and the labor market's bifurcated, not everybody's enjoying those real wage gains. And I think because inflation has been sticky in certain categories, that makes it tougher for lower-middle income, lower-income households. So I think, unfortunately, that's going to persist. But what we hope is that the fiscal stimulus, the rate cuts that are in the pipeline, and we also agree that inflation is likely to peak sometime in the second quarter. And that it will give the Fed room to cut rates in the second half of the year. We've got two 25 basis point rate cuts priced into our forecast. But, you know, all of that, we think, helps broaden out the gains in the labor market. As you mentioned, again, rightly so, so much of it's really focused in healthcare. We think it broadens out a bit. And if that's the case, and the unemployment rate stays low, then, you know, lower-income households should start to benefit. And as inflation comes down, you don't need nominal wages growth to go up. If inflation goes down, that's maybe the best recipe for those households. [00:15:47] Julie Hyman: You guys, we haven't talked a lot about that benchmark revision. It is backward-looking. I get it. But, Brian, what do we do with that number? What do we, you know, what's sort of the takeaway from that? [00:15:59] Speaker 4: I think the biggest takeaway is that there are a couple things that really drove it, right? The birth-death model we know is one of them, where basically the Bureau of Labor Statistics assumed that there were more businesses being created than really what were. And that's what the QCEW, so that quarterly census of employment and wages, allows us to really kind of true up is how many businesses were formed and destroyed because they can't measure that in real time. Now, I think that over the last few years, right, during COVID, a lot of people entering the gig economy, maybe started some small businesses, that kind of effect, they overestimated, they almost extrapolated that forward. Well, now, are they going to update the model and now underestimate the number of small businesses that could be formed going forward? And so, maybe next year, we're going to be talking about upward revisions instead of downward revisions. But in my mind, this really does highlight why it is that with all of the macroeconomic data, you really do have to take it with that grain of salt, preferably crushed up around the rim of a margarita glass. [00:17:02] Julie Hyman: It's a little early for that, Brian, but later, later, we'll get there. Thanks so much, guys. It's great to see all three of you. Brian, Kathy, Kelsey, thank you so much. Thank you. Coming up, we'll have more on the January jobs report. We'll look at the various sectors that added employment and the market reaction. We just got the jobs report coming out for January, better than estimated with an addition of 130,000 jobs versus the 65,000 that was estimated. Let's dig into the market reaction now with our Jared Blickery for a look at the movers on the back. Jared. Thank you, Julie. [00:17:42] Speaker 5: Well, on the Wi-Fi Interactive, let me just pull up a couple of charts here. I'll start with the Russell 2000 futures because those are jumping the most up about eight-tenths of 1% right now. And you can see we're a little bit off the highs. But this is a big spike we got off of the report after just kind of trading sideways but in positive territory most of the night since midnight. Here's the Dow futures up to 50,477. Not quite an intraday record high for those futures. But nevertheless, a nice little jump there. And I'll show you the S&P 500 as well, up about half of 1%. NASDAQ futures just a little bit higher than the S&P. But let's go to what the bond market is doing right now. These are two-year US Treasury note futures. So these move inversely to price. So we see this big drop there. That means that two-year yields are jumping on this. And it's the same deal for the 10-year. And here you see that, but a little less so. So we're seeing yields pop on this. We're seeing stocks pop on this, or at least the stock futures. Let's see what gold is doing. And no, it has not moved since the last time I checked. Not really much of a reaction there off of gold. But you can see it's still up 1% from yesterday's close, holding above 5,000 right there. Don't usually see a reaction in crude oil futures, but they have been on the move already, up 2.2% to $65 per barrel. And then Bitcoin also didn't see much of a reaction. Sometimes you see one, sometimes you don't. I guess it depends on the mood of the holders there, or the non-holders who are trading. Here's what the euro is doing with respect to the dollar. So we saw a little bit of a dip and a rebound. That means that the dollar is broadly stronger here versus the euro. And let's get into some sector action. So what I'm going to show you is what happened yesterday, where utilities were leading up 1.66%. Financials were the laggard. But let's throw on those overnight quotes. And there we go. Energy is in the top spot, up over 1%. So is tech, neck and neck for energy and tech there. Industrial is also popping. Materials, consumer discretionary. So it looks like a broad-based cyclical rally, at least in the very early innings. What's not working so far, staples and healthcare. And those are defensive sectors. So overall, a pretty bullish setup. We know with these payroll reports that things can change very quickly. And I'm just going to show you one more screen here. This is NASDAQ 100. All the background colors is what happened yesterday. But the little rectangles is what's happening this morning. Nvidia up 1.75%. Apple, Alphabet, Microsoft, Amazon, Meta, Broadcom and Tesla, all in positive territory. So a little bit of a comeback in terms of some of the mega caps and even some of the smaller ones, too. [00:20:20] Julie Hyman: Thanks, Jared. Appreciate it. Well, that delayed January jobs report showed 130,000 jobs were added last month. More than double the average economist's estimate. But a lot of the gains were concentrated in just a handful of areas. These were not broad-based gains. So let's go to Yahoo Finance's Brooke De Palma for more details on that. Hey, Brooke. [00:20:41] Speaker 6: Julia, good morning. Certainly, that's right. What we saw in 2025 really continued into January of 2026 with health care once again being the largest gainer during the month of January. As you can see here on the screen, the health care sector gained about 82,000 jobs. And breaking that down further, about 50,000 ambulatory jobs were added, 18,000 hospitals and 13,000 residential health care jobs. Just to keep this in context, about 33,000 jobs were added each month in 2025. Once again, health care showing the strongest growth in the month of January as we saw in 2025. And moving along, another sector that saw growth in the month of January was social assistance. That sector added about 42,000 jobs really delivered by individual and family services. That subsector ultimately delivered about 38,000 jobs. And taking a closer look, also construction. That was essentially flat for 2025. But during the month of January added about 33,000 jobs. When it came to specialty trade jobs within the construction sector, that added about 25,000 jobs. But it wasn't just gains as UN noted. Other sectors did see losses yet again. Once again, the federal government did see about 34,000 jobs lost. To put that into context, many accepted those resignation offers in 2025 that then flowed through into 2026. And to give some context there, since a peak in October of 2024, federal government jobs are down about 327,000 or about 11%. Another sector that saw job losses as well was financial activities down about 22,000. And that sector has lost about nearly 50,000, 49,000 jobs since May of 2025. And so moving into 2026 with similar trends that we saw in 2025. Brooke, thanks very much. Appreciate it. [00:22:35] Julie Hyman: Stay tuned for Morning Brief. We'll have more coverage, of course, on the January 8th job support. That's next. [00:22:44] Speaker ?: Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. We'll see you next time.