U.S. Employment (January 2026)

Payrolls turn meaningfully higher in January, unemployment rate ticks down to 4.3%

• Non-farm payrolls rose 130k in January, well ahead of the consensus forecast of 65k. 
  • This morning's release also included more comprehensive benchmark revisions, which are done annually to better align the establishment survey to the observed employment counts reported in tax filing data. The revisions showed that the level of employment as of March 2025 was lower by 898k.  
  • The Bureau of Labor Statistics also revised its seasonal adjustment factors (dating back to 2021) as well as the birth/death factors used to scale payroll changes up or down depending on the estimated rate of business formation. These revisions showed that payroll growth over the course of 2025 was revised lower by a total of 403k positions, though the bulk of the downward revisions were concentrated in H1-2025. In Q4-2025, payrolls were revised higher by 16k. 
• Private payrolls rose by a robust 172k in January, well above the 44k averaged over the prior six-month period. The bulk of January's job gains were concentrated in education and health care (+137k), while professional & business services (+34k) and construction (+33k) also chipped in. The federal government shed 34k positions. 
• In the household survey, a significant increase in civilian employment (+528k) eclipsed a smaller gain in the labor force (+387k), pushing the unemployment rate down a tick to 4.3%. However, the response rate was lower than usual last month because of inclement weather across much of the U.S.. 
• Average hourly earnings (AHE) rose 0.4% month-on-month (m/m), following a smaller gain of 0.1% m/m in December. On a twelve-month basis, AHE held steady at 3.7%.

Key Implications

• Well, that was unexpected! Not only did hiring activity turn meaningfully higher in January – with private payrolls rising at its fastest monthly pace in over a year – but the unemployment rate also ticked lower for a second consecutive month. 
• While we don't want to put too much emphasis on one data point, it would appear that the downside risks to the labor market have receded. Amid a backdrop of still elevated inflationary pressures, the Fed can be patient in its approach to further policy easing. Following this morning's release, Fed futures have pushed out the timing of the next rate cut to July (previously June), while the 10-year yield is up about 6 basis points to 4.2%.

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