Kiplinger Jobs Outlook: Is Surprise January Hiring Jump a One-Off?
Tune in next month to see if the strong January jobs growth was a fluke or not.
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The 130,000 jobs added in January was the strongest monthly gain in nine months, and runs counter to the recent narrative of a weak labor market. A second consecutive decline in the unemployment rate, to 4.3%, added to the surprise. Other positive indicators: The number of temporary workers has risen for three months in a row, after nearly uninterrupted declines for three and a half years, and the number of people working part-time because of slack hiring conditions fell. If the labor market really is making a turnaround, that would create a picture of a much stronger U.S. economy than had been forecast for this year.
However, there are reasons to think that the January report may be more of a blip than a turnaround. First, most of the gains were in one sector, health care and social assistance. The government, transportation and hospitality sectors are still showing weakness. Second, labor market data during the winter months are less reliable than at other times of the year, simply because seasonal shifts in hiring can be strong in winter. Finally, the Labor Department’s annual benchmark revision lowered total employment by over a million jobs, showing that the economy added fewer jobs than initially reported over the past two years. (The benchmark revision is tied to the much larger Quarterly Census of Employment and Wages (QCEW). The first monthly releases of the payroll employment numbers often miss turning points in the economy, because the government statisticians initially assume that missing data will continue past trends. The Bureau of Labor Statistics has announced that it will be revising the methodology for how it treats missing data in an attempt to improve the tracking of turning points.)
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Annual wage growth ended 2025 at a still-elevated 3.3%, according to the Employment Cost Index (ECI), but should continue to weaken gradually, ending 2026 a bit above 3.0%. Pay increases tend to lag other labor market indicators.
The good jobs report means that the Federal Reserve is less likely to cut interest rates, at least during Chair Jay Powell’s remaining term, which expires in May. If the job market weakens further, however, expect the Federal Reserve to come through with more interest rate cuts in an effort to boost the economy. We expect two quarter-point cuts later in 2026 under incoming Fed Chair Kevin Warsh, even if the labor market picks up.
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