The U.S. labor market began 2026 on stronger footing than many economists expected, even as revised data recast last year as far weaker than previously believed. According to the January employment report from the Bureau of Labor Statistics, employers added 130,000 jobs, while the unemployment rate edged down to 4.3 percent.

On the surface, the figures suggest renewed momentum after months of sluggish hiring tied to trade uncertainty, immigration restrictions, and federal workforce reductions. But a closer look reveals a labor market that is stabilizing unevenly — resilient in certain sectors, narrow in scope, and still shaping monetary policy expectations for months to come.

A Better Month, After a Worse Year

January’s hiring exceeded most forecasts, particularly given that the report was delayed by a brief government shutdown and followed several softer economic signals. Yet the headline gain arrives alongside a sobering revision: annual benchmark updates now show the U.S. added only 181,000 jobs in all of 2025, down sharply from earlier estimates of more than half a million.

Economists note that while revisions change the historical narrative, they do not necessarily undermine January’s signal. After rate cuts in the second half of last year, hiring appears to have stopped deteriorating — even if it has not meaningfully accelerated.

Health Care Continues to Carry the Load

Once again, job growth was highly concentrated. Health care accounted for roughly two-thirds of January’s gains, adding more than 80,000 positions. Construction followed with a solid increase, while most other private-sector industries showed little movement.

Manufacturing posted a modest gain, but not enough to suggest a sustained revival. Transportation, warehousing, information services, and financial activities all lost jobs, underscoring how uneven the recovery remains across the economy.

The federal government, meanwhile, shed tens of thousands of jobs as workforce reductions continued under President Donald Trump — a point highlighted by administration officials as evidence of private-sector strength, though critics note it also subtracts from overall employment momentum.

Participation and Hours Signal Labor Demand

Beyond payroll totals, several underlying indicators painted a more encouraging picture. Labor force participation among workers aged 25 to 54 jumped to 84.1 percent, the highest level in more than two decades. Employers also slightly increased the average workweek, a sign that firms are stretching existing staff rather than cutting hours.

Wage growth remained steady at about 3.7 percent year over year. However, gains have become increasingly stratified, with higher-income workers seeing faster increases than those at the lower end of the pay scale — a dynamic that complicates inflation assessments.

Fewer Layoffs, Fewer Openings

Other labor-market data released in recent weeks show a cooling, but not collapsing, employment environment. Job openings fell to their lowest level since 2020, reflecting more cautious hiring plans. At the same time, unemployment claims stayed low, indicating that employers remain reluctant to let workers go.

This combination — slower hiring paired with minimal layoffs — suggests businesses are positioning for slower growth rather than bracing for recession.

Markets and the Federal Reserve React

Financial markets quickly adjusted expectations. Treasury yields rose, with the 10-year note moving above 4.1 percent, as investors priced in a lower probability of near-term interest rate cuts. Equities opened higher, led by energy and industrial stocks.

The report strengthens the hand of the Federal Reserve, which paused rate cuts earlier this year after easing policy in late 2025. With inflation still above target and employment no longer weakening, policymakers — including Chair Jerome Powell — now have political and economic cover to remain patient.

President Trump, however, used the report to renew calls for sharply lower rates, arguing that strong hiring should justify cheaper borrowing. The tension highlights an ongoing divide between the White House’s growth priorities and the Fed’s inflation mandate.

A Noisy Start, Not a Verdict

Economists caution that January is traditionally one of the most volatile months for employment data due to seasonal adjustments after the holidays. The coming reports will determine whether January marks the start of a durable rebound — or merely a statistical bounce after an unusually weak year.

For now, the message is mixed but clearer than before: the U.S. labor market is no longer sliding, but its strength is narrow, its gains uneven, and its future tightly bound to policy decisions still unfolding in Washington and at the Federal Reserve.