Month: February 2026

Surprisingly Strong Jobs Report Accompanied by a Large Downward Annual Benchmark Revision

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This morning (February 11), the Bureau of Labor Statistics (BLS) released its “Employment Situation” report (often called the “jobs report”) for January. The report was originally scheduled to be released last Friday but was postponed by the brief federal government shutdown. The data in the report show that the labor market was much stronger than expected in January. 

The jobs report has two estimates of the change in employment during the month: one estimate from the establishment survey, often referred to as the payroll survey, and one from the household survey. As we discuss in Macroeconomics, Chapter 9, Section 9.1 (Economics, Chapter 19, Section 19.1), many economists and Federal Reserve policymakers believe that employment data from the establishment survey provide a more accurate indicator of the state of the labor market than do the household survey’s employment data and unemployment data. (The groups included in the employment estimates from the two surveys are somewhat different, as we discuss in this post.)

According to the establishment survey, there was a net increase of 130,000 nonfarm jobs during January. This increase was well above the increase of 55,000 that economists surveyed by the Wall Street Journal had forecast.  Economists surveyed by Bloomberg had a higher forecast of 65,000 net jobs. The BLS revised downward its previous estimates of employment in November and December by a combined 17,000 jobs. (The BLS notes that: “Monthly revisions result from additional reports received from businesses and government agencies since the last published estimates and from the recalculation of seasonal factors.”)

The following figure from the jobs report shows the net change in nonfarm payroll employment for each month in the last two years. The increase in net jobs in January was the largest since December 2024.

The unemployment rate, which is calculated from data in the household survey, fell from 4.4 percent in December to 4.3 percent in January. As the following figure shows, the unemployment rate has been remarkably stable over the past year and a half, staying between 4.0 percent and 4.4 percent in each month since May 2024. The Federal Open Market Committee’s current estimate of the natural rate of unemployment—the normal rate of unemployment over the long run—is 4.2 percent. So, unemployment is slightly above the natural rate. (We discuss the natural rate of unemployment in Macroeconomics, Chapter 9 and Economics, Chapter 19.)

As the following figure shows, the monthly net change in jobs from the household survey moves much more erratically than does the net change in jobs from the establishment survey. As measured by the household survey, there was a net increase of 528,000 in January, far above the increase in jobs from the payroll survey. (Note that because of last year’s shutdown of the federal government, there are no data for October or November.) In any particular month, the story told by the two surveys can be inconsistent. In this case, both surveys indicate unexpectedly strong job growth, with the increase in household employment being particularly strong. (In this blog post, we discuss the differences between the employment estimates in the two surveys.)

The household survey has another important labor market indicator: the employment-population ratio for prime age workers—those workers aged 25 to 54. In January the ratio was 80.9 percent, the highest since September 2024. In addition to matching the recent highs reached in mid-2024, the prime-age employment-population ratio is above what the ratio was in any month since April 2001. The continued high levels of the prime-age employment-population ratio indicates some continuing strength in the labor market.

The Trump Administration’s layoffs of some federal government workers are clearly shown in the estimate of total federal employment for October, when many federal government employees exhausted their severance pay. (The BLS notes that: “Employees on paid leave or receiving ongoing severance pay are counted as employed in the establishment survey.”) As the following figure shows, there was a decline federal government employment of 166,000 in October, with additional declines in the following three months. The total decline in federal government employment since the beginning of February 2025 is 324,000.

The establishment survey also includes data on average hourly earnings (AHE). As we noted in this post, many economists and policymakers believe the employment cost index (ECI) is a better measure of wage pressures in the economy than is the AHE. The AHE does have the important advantage of being available monthly, whereas the ECI is only available quarterly. The following figure shows the percentage change in the AHE from the same month in the previous year. The AHE increased 3.7 percent in January, the same as in December.

The following figure shows wage inflation calculated by compounding the current month’s rate over an entire year. (The figure above shows what is sometimes called 12-month wage inflation, whereas this figure shows 1-month wage inflation.) One-month wage inflation is much more volatile than 12-month wage inflation—note the very large swings in 1-month wage inflation in April and May 2020 during the business closures caused by the Covid pandemic. In January, the 1-month rate of wage inflation was 5.0 percent, up from 0.7 percent in December. This increase in wage growth may be an indication of a strengthening labor market. But one month’s data from such a volatile series may not accurately reflect longer-run trends in wage inflation.

In today’s jobs report, the BLS also included its final annual benchmark revision to the establishment employment data. (We discussed the preliminary annual revision in this blog post last September.) The following table from the jobs report indicates that the revision was quite substantial. The revised estimate of payroll employment is 1,029,000 jobs lower than the original estimate. The increase in total nonfarm employment in 2025 was revised down to only 181,000 from the original estimate of 584,000. Leaving aside the collapse in employment in 2020 during the Covid pandemic, job growth in 2025 was the slowest since 2010 in the immediate aftermath of the Great Recession of 2007–2009.

Despite the large downward revision to job growth in 2025, the strong job growth for January in today’s jobs report makes it unlikely that the Federal Reserve’s policymaking Federal Open Market Committee (FOMC) will lower its target for the federal funds rate at its next meeting on March 17–18. The probability that investors in the federal funds futures market assign to the FOMC keeping its target rate unchanged at that meeting jumped from 79.9 percent yesterday to 92.1 percent after the release of today’s jobs report.

December JOLTS Report Shows Possible Labor Market Weakening

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Today (February 5), the Bureau of Labor Statistics (BLS) released its “Job Openings and Labor Turnover” (JOLTS) report for December 2025. The report indicated that labor market conditions may be weakening. The following figure shows that the rate of job openings fell to 3.9 percent in December from 4.2 percent in November. The rate was 4.5 percent in October. The job openings rate is the lowest since April 2020, at the start of the Covid pandemic. We should note the usual caveat that the monthly JOLTS data is subject to potentially large revisions as the BLS receives more complete data.

(The BLS defines a job opening as a full-time or part-time job that a firm is advertising and that will start within 30 days. The rate of job openings is the number of job openings divided by the number of job openings plus the number employed workers, multiplied by 100.)

In the following figure, we show a measure of the state of the labor market that economists frequently use: the total number of job openings to the total number of people unemployed. In December there were 0.87 job openings per unemployed person, the lowest value for that measure since March 2021, during the recovery from the pandemic. The value was 1.0 in September. (Note that data for October and November are unavailable because the data weren’t collected during the shutdown of the federal government from October 1 to November 12 last year.) The value for December is well below the 1.21 job openings per employed person in February 2020, just before the pandemic. (Note that, as we discussed in this blog post, the employment-population ratio for prime age workers, which many economists consider a key measure of the state of the labor market, rose in December, putting it above what the ratio was in any month during the period from January 2008 to February 2020.)

The rate at which workers are willing to quit their jobs is an indication of how they perceive the ease of finding a new job. As the following figure shows, the quit rate declined slowly from a peak of 3 percent in late 2021 and early 2022 to 2.0 percent in August 2024, the same value as in December 2025. That rate is below the rate during 2019 and early 2020. By this measure, workers’ perceptions of the state of the labor market have remained remarkably stable over the last year and a half.

Overall, this JOLTS report is consistent with what some economists have labeled a “slow hire, slow fire” labor market. Fed Chair Jerome Powell’s remarks at his press conference following the last meeting of the Federal Open Market Committee (FOMC) indicates that Fed policymakers share this view, which Powell believes complicates monetary policymaking:

“So there are lots of … little places that suggest that the labor market has softened, but part of … payroll job softening is that both the supply and demand for labor has come down … growth in those two have come down. So that makes it a difficult time to read the labor market. So, imagine they both came down a lot, to the point where there is no job growth. Is that full employment? In a sense it is. If demand and supply are … in balance, you could say that’s full employment. At the same time, is it—do we really feel like … that’s a maximum employment economy? It’s a challenging—it’s very challenging and quite unusual situation.”

The BLS was scheduled to release its monthly “Employment Situation” report (often called the “jobs report”) for January 2026 tomorrow. Because of the temporary lapse in funding that began Saturday, the report will instead be released next Wednesday, February 11. That report will provide additional data on the state of the labor market. (Note that the data in the JOLTS report lag the data in the “Employment Situation” report by one month.)