Market Update: A stronger-than-expected jobs report could signal a labor market turnaround – with caveats – Full Analysis

US job growth was historically weak last year. And US job growth was significantly stronger than expected at the start of this year.

In the January jobs report released Wednesday – a Schrödinger’s cat of employment snapshots – the seemingly opposed dynamics both held true.

The US economy added an estimated 130,000 jobs last month, and the unemployment rate ticked down a tenth of a percentage point to 4.3%, according to new Bureau of Labor Statistics data.

That’s far stronger than the 75,000 net gain economists had projected, and it’s only 51,000 jobs shy of the entirety of the jobs created in 2025, BLS data shows.

January jobs reports are typically among the most complex: There’s usually some seasonal post-holiday employment quirks, and it’s also a time when the BLS does a statistical fine tuning that can deeply reshape the view of past years’ labor markets.

But even so, this complicated and noisy jobs report provided a touch of clarity about what this year could bring to US households and the broader economy.

“The labor market appears to be stabilizing,” Heather Long, chief economist with Navy Federal Credit Union, told CNN. “That’s the first step to recovery.”

Strong and weak numbers

January marked the strongest month of job creation since December 2024.

Health care and social assistance drove the lion’s share of last month’s employment gains, with an estimated 123,500 jobs added.

That was followed by the 34,000 jobs gained in professional and business services, including employment services, administrative and other white-collar roles. Construction, likely helped by unseasonably warm weather at the start of the month, added 33,000 jobs.

Many other sectors, notably government (-42,000 jobs), either shed jobs or reported very weak gains.

Wednesday’s jobs report also included a slew of data revisions – including an annual benchmarking, a yearly update of seasonal adjustment factors, and a recalibration of how the BLS captures employment changes at new and closed businesses – that showed past job gains were much weaker than initially thought.

Notably, the US economy added just 181,000 jobs in 2025, versus the previously estimated 584,000. That’s the one of the worst years ever for job creation outside of a recession, BLS data shows.

The annual benchmark revision, which squares the survey-drawn monthly payroll estimates with comprehensive but lagged data from employers’ quarterly tax filings, showed there were 898,000 fewer jobs added between April 2024 and March 2025.

On a not seasonally adjusted basis, the downward revision was 862,000 – the second-largest negative adjustment on record behind a downward revision of 902,000 in 2009, according to BLS data that goes back to 1979.

Such large swings, positive or negative, typically occur in times of swift and significant economy change.

The likeliest contributors to last year’s large swing included declining survey response rates, models that previously didn’t accurately capture jobs created and those lost at new and closed businesses, and misreporting issues (such as counting contract or informal workers or initially reporting more immigrant workers in the surveys than unemployment insurance reports).

Underlying dynamics remain

The headline numbers for job gains and unemployment should quell fears that the US labor market is at risk of deteriorating, said Josh Hirt, senior economist at Vanguard.

With a caveat.

“I don’t think that one should take this report to show that the labor market is reaccelerating at this point,” he added.

That’s because the underlying dynamics of the labor market haven’t dramatically shifted in one month’s time.

Beneath the surface, the US economy is likely in the throes of a “jobless expansion,” EY-Parthenon economist Greg Daco told CNN.

It’s also a labor market in transition.

There’s a significant amount of pressure being applied on both the demand for labor as well as the supply of workers, he said.

The combination of the Trump administration’s historic deportation push and the aging of the massive Baby Boomer population means that the economy doesn’t need to add many jobs to keep unemployment steady, Daco said.

That break-even rate is “very close to zero or potentially in negative territory,” he said.

At the same time, demand for workers has softened, giving employers the upper hand and putting a squeeze on wage gains.

Income loss as a result of that is a big worry for lots of families, Daco said.

That dynamic could land especially heavy in kitchen-table discussions already bogged down by affordability concerns. New data this week showed that a growing share of Americans are finding it harder to keep up with rising costs and increasingly unwieldy debt loads.

Wednesday’s report indicated that the labor market is neither falling apart nor booming, Hirt noted.

Rather, he said, it paints a picture of stabilization.

And that dynamic could prove critical for US households and the broader economy later this year, he said, adding that the first half of the year could be “somewhat choppy.”

Job creation likely will be softer until more “pro-growth” aspects come into play in the second half of the year, he said.

Expectedly larger-than-typical tax refunds could juice consumer spending, and with it, the economy; new tax incentives could open up hiring and fuel further productivity-related investments in AI and infrastructure; and there should be an easing in uncertainty and volatility due to trade matters and other sweeping policy changes, he said.

“We think all of those things should translate into both growth as well as hiring,” he said.