The American economy added 130,000 jobs in January, enough to push the unemployment rate down to 4.3% amid a large downward revision in total employment from April 2024, the Bureau of Labor Statistics reported on Wednesday.
The revision resulted in 898,000 fewer jobs on a seasonally adjusted basis, or 862,000 jobs on a non-seasonally adjusted basis.
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Once one works through the large downward revisions, hiring stabilized in the second half of last year following rate cuts by the Federal Reserve, albeit at a modest pace of 73,000 over the previous three months including the estimate for January.
On a six-month basis, hiring slowed to an average of 15,000 positions per month.\
Overall, there were 1.45 million jobs created in 2024 in contrast with only 181,000 last year once the annual benchmark revision is factored in.
Our base case for employment remains the same—that the economy needs to generate between zero and 50,000 jobs each month to keep labor market conditions stable.
There are several reasons why hiring has slowed: Changing demographics, tight immigration policies, the end of labor hoarding and a pause in hiring as productivity improves.
In the near term, there is no reason that these factors will change. But it is growing equally clear that gross domestic product is in the process of decoupling from hiring.
While GDP provides strong insight into production, construction and investment, it does not always tell us how we live now. Slower job growth makes it more difficult to find a similar job at higher wages and adds to the very real affordability crisis that many households face.
The ideas of two economies, separate and unequal, that are part of the K-shaped post-pandemic recovery will most likely become further entrenched in the minds of an American public whose views on the economy can best be defined by the word discontent.
Reality check
Despite the large downward revision, unemployment increased by roughly one percentage point between March 2023 and December 2025. That fact was not changed by the annual benchmark revision, and because of solid growth in turn-of-the-year hiring, the unemployment rate declined to 4.3%.
The labor force increased by 387,000 workers in January as people entered the workforce to capture the 3.7% advance in average hourly earnings.
None of these dynamics scream recession nor the need for Fed rate cuts in the near term.
Policy implications
In many ways, the benchmark revision validates the Fed’s rate cuts in late 2024, which were controversial because of the presidential election. The benchmark revision shows that there was a slowing pace of hiring at the time. Then in the second half of last year, hiring slowed to a near halt before stabilizing on the back of those rate cuts.
Now, with hiring stabilizing over the past three months and the unemployment rate declining to 4.283%, when taken out to three decimal points, there is no need for the Fed to cuts its policy rate anytime soon.
Should Kevin Warsh be approved as the new Fed chair then we think we could see one 25 basis-point rate cut at the Fed’s June or July meeting, which would push the federal funds policy rate to a range between 3.25% and 3.5%. That rate is close to the Fed’s 3% estimate of neutral and would be in line with RSM’s estimate of 3.5%.
Any rate cuts beyond that would only call into question the credibility and independence of the central bank.
The data
Total private employment increased by 172,000 jobs in January, underscored by a 36,000 advance in goods-producing jobs and 33,000 in construction employment, both of which are linked to the building out in artificial intelligence data centers.
Private education and health care continued to provide the lion’s share of job gains and added 137,000 jobs in January.
Manufacturing added 5,000 jobs in January. But there was a net decline of 98,000 in total manufacturing employment last year, which is linked to the turmoil around tariffs and the trade war that started last April.
The trade and transport sector lost 9,000 jobs in January, the information sector shed 12,000 and the financial sector declined by 22,000.
There were 34,000 professional business services jobs created in January, 9,000 temp jobs and 1,000 positions in the retail trade and leisure and hospitality sectors, respectively.
The government sector declined by 42,000 jobs, with 34,000 positions lost at the federal level.
The takeaway
Every January, policymakers, the public and investors get an updated picture of the labor market driven by seasonal adjustments, benchmark revisions, and an update to the Bureau of Labor Statistics’ birth-death model of new and expiring businesses. That resulted in a seasonally adjusted decline of 898,000 jobs.
But it appears that the Fed’s rate cuts late last year stabilized hiring at a level consistent with a modest hiring pace this year near our forecast of 50,000 per month.
It is also equally clear that growth in the economy has decoupled from hiring, which will create a greater degree of difficulty in formulating and implementing monetary policies as transformation and disruptive structural change driven by artificial intelligence accelerates.
