The January Jobs report came in somewhat better than was generally expected. The establishment survey showed a gain of 130,000 jobs for the month, about 80,000-90,000 more than was generally expected. The household survey also showed a modest drop in unemployment, with the unemployment rate falling to 4.3 percent, 0.2 percentage points (p.p.) below its December level.

While it may be the case that the labor market is actually improving, it is also possible that the improvement was driven in part by better than usual January weather. The Northeast and Midwest were hit by snowstorms in January, but these came in the second half of the month, after the reference period for the surveys. If weather was a factor in a better-than-expected January report, then the February report will look relatively weak, since we saw more normal winter weather in the reference period.

Job Growth Will Slow Sharply, Especially If Better than Normal Weather Inflated January’s Numbers

Employment actually shrank in the last five months of 2025, with the economy shedding 45,000 jobs from July to December. The picture looks better if we just look at the private sector, since this was the period when the DOGE layoffs took effect. Still, the private sector created jobs at just a 39,000 monthly rate over this period. So, the 172,000 jump in private sector employment was a sharp turnaround.

Construction is an obvious area where weather may have been a factor. Ordinarily, bad weather would delay construction in parts of the country in January. That likely didn’t happen this year, or at least not before the reference period. Construction had actually lost 1,000 jobs in the year from December 2024 to December 2025. It added 33,000 jobs in January. If this was weather driven, look for construction employment to be flat, or even decline slightly, in February.

Manufacturing added 5,000 jobs in December, its first monthly job gain in more than a year. This may also have been partly due to the weather, as fewer factories would have been closed because they were unable to get parts delivered. If weather was responsible for it, manufacturing is likely to resume its losing streak in February.

Health Care and Social Assistance Will Account for Most Job Growth

The health care and social assistance sectors added 758,000 jobs last year and 124,000 jobs in January alone. This sector is almost certain to dominate job growth again in February.

The restaurant sector has been the only other consistent job gainer over the last year. It added 154,000 jobs over the last year and 28,000 jobs in January. Weather likely also played a role in January’s strong growth so we should expect to see fewer job gains in February.

Wage Growth is Slowing

The year-over-year growth in the average hourly wage was 3.7 percent in January. This is down from the 4.1 percent growth rate in 2023 and 2024. The Employment Cost Index showed even more slowing, with the wage component rising just 3.5 percent year-over-year in the fourth quarter. However, even with the slowing, wages still appear to be outpacing an inflation rate near 3.0 percent.

Wage growth at the lower end of the wage distribution again seems to be slightly outpacing average wage growth. The year-over-year increase in the hourly wage for non-supervisory workers in the leisure and hospitality sector was up 4.0 percent in January. This is much slower than the rate of increase earlier in the recovery, but is still outpacing inflation and wage growth for higher paid workers.

Will Good News on the Labor Market for Black Workers and Young People Continue?

There had been an extraordinarily large rise in the unemployment rate for Black workers in the year up to November, when it hit 8.2 percent. That is up 3.4 p.p. from its all-time low of 4.8 percent in April of 2023. This rise was especially striking since the increase in unemployment for whites was minimal. However, in the last two months the unemployment rate for Black workers fell back to 7.2 percent. This is still a rise of 1.0 p.p. from the year-ago level (the rate for whites, at 3.7 percent, is up just 0.2 p.p.), but it is far better than the November figure.

Similarly, the sharp rise in unemployment for people between the ages of 20-24 was largely reversed in recent months, falling from 9.2 percent in September to 7.1 percent in January. The February data will tell us whether the improvements for these hard-hit groups reported last month was a fluke, or whether the negative trends reported in 2025 might have been overstated.

Prime-Age Employment-to-Population Ratio Hit a Recovery Peak

The employment-to-population ratio for workers between the ages of 25-54 tied its recovery peak of 80.9 percent in January. This was also likely influenced by the weather, but with a good month, the level could hit a new high for the recovery in February.

Quits, Multiple Job-Holders, and Involuntary Part-Time

The household survey was showing disturbing trends in all three areas, which was largely reversed in January. The percentage of unemployment due to voluntary quits stood at 11.2 percent in December. This compares to 13.2 percent in the strong labor market of 2018-19. This suggested that workers were not confident of their labor market prospects and were therefore unwilling to quit a job until they had a new job lined up. However, the January report reversed this story with the share of quits among the unemployed jumping to 13.7 percent.

The percentage of workers holding multiple jobs hit a high for the century at 5.8 percent in November. This figure fell back to 5.3 percent in January, the same as its year-ago level.   

Involuntary part-time employment took a big jump in November, putting it almost 1 million above the year ago level. This has also fallen back sharply in the last two months so that it is now 400,000 above the year ago level.

The Big Question: Was January an Anomaly or Have We Turned a Corner?

The labor market was slowly deteriorating by a number of measures through 2025. The January report was at least a partial reversal of these trends. This reversal is not showing up in other data sources, like unemployment filings (moderate, but not improving) or Indeed’s job listings. The February report will either reinforce the January data as an actual turning point or indicate it was an anomaly, possibly driven by the weather.