News & Insights

Unemployment Rate Falls in Spite of Increased Labor Participation 

The Bureau of Labor Statistics (BLS) released its first employment report of the year, and it was much stronger than expected. BLS also revised its tally of last year’s jobs created downward by more than 400,000, putting total job creation for 2025 at only 181,000. Twenty-five of the last 26 months of payroll growth have now been revised down from their initial report.

The unemployment rate showed a tightening job market, falling to 4.3%, down from November’s initial release that peaked at 4.6%. Payroll increases were also strong, significantly exceeding expectations with 130,000 jobs added versus the forecasted 66,000.  This has effectively eliminated market expectations for a March rate cut. 

Private payrolls were up a more impressive 172,000, surpassing the consensus estimate of 70,000. Government payrolls were down another 34,000, bringing the total drop since January of 2025 to 324,000, more than 10% of the entire federal workforce.

The total size of the labor force increased to its highest level on record after stagnating throughout the last year. Workers aged 25-54 were the main contributors to the gain, jumping 0.3% in their participation rate in January, more than offsetting the continuing decline of the 55 and older cohort. The employment-to-population ratio for the prime working-age population also saw robust improvement, matching highs of this cycle, only bested by the dot-com bubble.

Persistent downward revisions in the employment data easily justify skepticism, but other more reliable datasets substantiate a healthy job market. Initial unemployment claims have been stable, with continuing claims reaching their lowest levels in over a year, showing those losing jobs are able to find new ones. 

Transcript data from S&P 500 company earnings reports reflect consistent mentions of job cuts when compared to past quarters. Even mentions of employee attrition have been trending downward. Combined with record margins and another quarter of strong earnings growth, they are unlikely to implement layoffs at scale, which puts the economy on solid footing for 2026.

Unemployment Rate Versus Prime Age (25-54) Labor Force Participation 

Source: Bloomberg 

Job Growth Revisions (Initial Estimate VS Current)

Source: Bloomberg

Employment to Population Ratio (Age 25-54)

Source: Bloomberg

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