Key Points
- The economy added 130,000 jobs in January.
- The strong BLS labor report means that further rate cuts are unlikely in the first half of 2026.
The economy added 130,000 jobs in January 2026, according to the BLS labor report. The result far exceeded average expectations of 70,000 from economists polled by Reuters and was greeted with a fair degree of skepticism.
Job growth was patchy, with increases concentrated in the Private Education and Health Services sector, which added 137,000 jobs.
The unemployment rate fell to 4.3% in January, although the Household Survey had a below-average response rate of 64.3% due to adverse weather conditions.
Aggregate weekly hours worked grew by a modest 1.0% for the 12 months to January, indicating a weak economy.
Employment in cyclical sectors increased by 27,000 jobs in January, primarily due to nonresidential construction of AI data centers.
Average hourly earnings grew by 0.4% in January, an annualized rate of 4.8%. The 6-month average is 3.8% annualized.
Stocks
The S&P 500 retreated from resistance at 7000 as the prospect of another rate cut in the first half of 2026 is now considered unlikely.
The Dow Jones Industrial Average continues to test its new support level at 50,000.
Conclusion
We are wary of monthly job numbers because of frequent revisions and political interference. President Trump dismissed BLS Commissioner Dr. Erika McEntarfer, nominated by former President Joe Biden, alleging that she fabricated poor numbers for political reasons.
Nevertheless, January’s strong jobs report should provide the Fed with sufficient cover to hold off further rate cuts until the second half of 2026. Average hourly earnings growth remains close to 4.0%, indicating underlying inflationary pressures.
Acknowledgments
- Federal Reserve of St Louis: FRED Data
- Reuters: US job growth surges in January, but labor market far from turning around
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He founded PVT Capital (AFSL number 546090), which provides income and growth strategies to wholesale clients.
Colin also co-founded Incredible Charts and writes the popular Patient Investor newsletter.
Using a top-down approach, Colin identifies macro trends in the global economy and then combines fundamental and technical analysis to evaluate opportunities in sectors that stand to benefit.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.