Dive Brief:
- Unemployment fell last month to 4.3%, the Bureau of Labor Statistics said Wednesday, as employers added 130,000 jobs in a hiring surge that far exceeded expectations.
- The health care sector led gains with 82,000 new hires, expanding the most since 2020 and extending a trend from last year. Construction, manufacturing and professional and business services also increased payrolls, the BLS said. At the same time, financial services lost 22,000 jobs and BLS data revisions reduced average monthly job gains last year to 15,000 from 49,000, underscoring labor market weakness.
- “The jobs report was meaningfully better than expected,” Global X Head of Investment Strategy Scott Helfstein said, “pushing back on anecdotal reports of mounting layoffs and weakening labor markets.” The employment data and brighter forecasts for gross domestic product growth in 2026 suggest “the economy remains reasonably healthy,” Helfstein said.
Dive Insight:
Responding to the surprising strength in the labor market, traders in interest rate futures expect a slower pace of easing by the Federal Reserve this year than they did on Tuesday.
Futures traders now see 26% odds that policymakers will hold the federal funds rate on July 29 at its current range between 3.5% and 3.75% compared with 15% odds on Tuesday, according to CME Group’s FedWatch Tool. They see a 24% probability that the benchmark rate will be a half point lower on that date compared with a 33% probability on Tuesday.
The robust hiring affirms comments in recent weeks by Fed Chair Jerome Powell and other policymakers that the job market is showing signs of strengthening after several months of weakness in 2025.
“The labor market now appears to be stabilizing, and the downside risks appear to have meaningfully dissipated,” Dallas Fed President Lorie Logan said Tuesday.
The unemployment “rate looks close to its level in the middle of last year and near estimates of the natural rate that economists typically associate with a full-employment labor market,” she said in a speech.
“Economic activity has rebounded strongly since the first half of last year, bolstered by strong consumer spending and business investment, which should support the labor market,” she said.
Logan was one of 10 policymakers who voted last month to halt quarter-point reductions in the federal funds rate. Two Fed governors dissented in favor of lower borrowing costs.
The central bank cut the main rate three times in the final months of 2025 while citing weakness in the labor market.
Fed officials, regardless how they have voted on policy, have voiced concern about fragility in the labor market.
“My contacts broadly agree that we are now in a low-hire/low-fire/low-quit labor market,” Kansas City Fed President Jeffrey Schmid said today in a speech.
The highest tariffs since the 1930s, uncertainty from other Trump administration policy shifts and potential productivity gains from artificial intelligence have prompted employers to shelve hiring plans during the past several months.
Job openings fell last month and, during all of 2025, plunged by 966,000 to 6.5 million, the lowest level since Sept. 2020, the Bureau of Labor Statistics said on Feb. 5.
San Francisco Fed President Mary Daly last week made the same point as Schmid, saying, “we’ve been in a relatively low-hiring, low-firing environment for some time.
“That may persist, but workers are aware that things could change quickly, leaving them in a no-hiring, more-firing labor market,” she said in a LinkedIn post, noting recent consumer surveys revealing anxiety about job security.
The unemployment rate in December was 4.4%.
