U.S. Adds 130,000 Jobs in January...Fed Early Rate-Cut Expectations Recede

Nonfarm payrolls up 130,000 in January
Unemployment rate falls for second straight month to 4.3%
Last year’s job gains overstated by 898,000

The U.S. Federal Reserve (Fed) building in Washington, D.C. Reuters Yonhap

U.S. job growth in January accelerated unexpectedly, while the unemployment rate fell to 4.3%, lower than a month earlier. With the labor market showing signs of stability, the U.S. Federal Reserve (Fed) has gained justification to keep its benchmark interest rate on hold for the time being. In the markets as well, expectations for an early rate cut are fading.

2.4 times higher than experts' forecasts

The Bureau of Labor Statistics (BLS) under the Department of Labor announced on the 11th (local time) that U.S. nonfarm payrolls in January increased by 130,000 compared with the previous month. This is not only a sharp expansion from December last year (48,000), but also far exceeds the Dow Jones consensus forecast of 55,000. By sector, healthcare led the job gains, with social assistance and construction also adding jobs. In contrast, federal government employment declined.

The unemployment rate fell to 4.3%, down from 4.4% a month earlier and below the 4.4% expected by experts. It has declined further after dropping from 4.6% in November last year to 4.4% in December. The labor force participation rate came in at 62.5%, up 0.1 percentage point from 62.4% in December last year. Average hourly earnings rose 0.4% from the previous month, beating the market expectation of 0.3%. On a year-on-year basis, wages increased 3.7%, in line with market forecasts.

Annual job growth overstated by 898,000

In contrast, the revised annual employment figures for last year showed a large gap from the previous estimates. The revised figure for the increase in annual nonfarm payrolls for 2025 (from the second quarter of 2024 to the first quarter of 2025), released that day, was 898,000 lower than initially reported. This means that in 2025, U.S. employment rose by only 15,000 per month on average. Citing the annual revision, Reuters pointed out that "the largest job gain in 13 months reported by the Labor Department today likely overstated the true state of the labor market."

In addition, the BLS revised the previous two months' data. The November job gain last year was revised down by 15,000, from 56,000 to 41,000, and the December job gain was revised down by 2,000, from 50,000 to 48,000.

Odds of a June rate hold rise into the 40% range

In the market, expectations for an early rate cut have eased following the release of this report. The probability that the Fed will keep rates unchanged in June, which had been seen as the likely timing for the first rate cut this year, has climbed from 20% to 40%.

According to the Chicago Mercantile Exchange (CME) FedWatch tool, the probability that the benchmark rate will be kept at its current level at the June Federal Open Market Committee (FOMC) meeting stands at 41.1%, up about 16 percentage points from 24.8% the previous day. June is currently viewed as the most likely month for a rate cut.

Sarah House, senior economist at Wells Fargo, told Reuters, "The labor market looks closer to a stable phase than to a sharp deterioration," adding, "These figures further reduce the likelihood of additional rate cuts under Fed Chair Jerome Powell."

Meanwhile, the Donald Trump administration hailed the jobs report as a record achievement and praised itself. White House deputy press secretary Kusshi Desai said on the White House website that "today's jobs report shows that President Trump's economic agenda continues to deliver results," adding, "By adjusting federal government employment to its lowest level since 1966, President Trump is accelerating economic growth beyond the 'Biden disaster'."