Far exceeding expectations! U.S. non-farm payrolls added 130,000 in January, and the unemployment rate unexpectedly declined. Market rate cut expectations cool down.

The Tong Finance APP has learned that in January, the seasonally adjusted non-farm payrolls in the United States increased by 130,000, the largest gain since April 2025, compared to an expected 70,000. The previous figure was revised from 50,000 to 48,000. Non-farm employment in November was revised from an increase of 56,000 to 41,000; December’s non-farm job gains were revised from 50,000 to 48,000. After revisions, the total new jobs added in November and December are 17,000 lower than previously reported.

As has been typical in the U.S. labor market, the healthcare sector led employment growth in December, adding 82,000 jobs. Employment in social assistance also increased by 42,000, with these two categories nearly accounting for all of the net new jobs. After a sluggish year of growth, the construction industry added 33,000 jobs this year.

Earlier economic data showed slow private sector growth, increased layoffs, and fewer job openings, leading to subdued expectations on Wall Street for this report. Even White House officials, such as National Economic Council Director Kevin Hasset, have been lowering market expectations.

Fitch noted, “Considering the slowdown in labor supply, this is a fairly healthy number. In fact, it is the fastest three-month average increase since February 2025. This stands in stark contrast to recent sensational headlines about layoffs and declining job openings. The downward risks to the labor market that the Fed was concerned about at the end of last year have not disappeared, but these risks are clearly diminishing.”

The U.S. unemployment rate in January was 4.3%, slightly below the market expectation of 4.4%, reaching a new low since August 2025. A more comprehensive unemployment rate indicator, which includes those who have given up seeking work and those working part-time for economic reasons, fell to 8%, down 0.4 percentage points from December.

The labor force participation rate increased from 62.4% to 62.5%, slightly better than the unchanged expected figure. Among the main labor groups, the youth unemployment rate in January fell to 13.6%. Unemployment rates for adult men (3.8%), adult women (4.0%), and White (3.7%), Black (7.2%), Asian (4.1%), and Hispanic (4.7%) populations have all slightly improved in recent months.

In addition to the monthly data, the U.S. Bureau of Labor Statistics also released annual final benchmark revisions through March 2025. After seasonal adjustment, these revisions lowered the initial estimates by 898,000. This figure is slightly below the September 2024 preliminary estimate of 911,000 but aligns with Wall Street expectations.

Goldman Sachs Asset Management analyst Kay Haigh stated, “There are some initial signs of tightening in the labor market, but there is still a way to go before it is fully tight. Given the economy’s continued outperformance, the FOMC’s focus will shift to inflation. We still believe the Fed has room to cut rates twice this year; however, if the CPI released on Friday unexpectedly rises, it could tilt the Fed toward a hawkish stance. The January average hourly wage growth rate was 3.7% year-over-year, compared to an expected 3.6% and a previous 3.80%.”

Following the release of the January non-farm payroll report, U.S. short-term interest rate futures declined. Currently, traders estimate only a 20% chance of a rate cut before April, significantly down from about 40% prior to the data release. Although they still bet on the Fed cutting rates again in June, the probability of holding steady by then has risen to nearly 40%, up from about 25% before the employment report.

This pushed up yields on U.S. Treasuries across various maturities, with the two-year Treasury yield, which is most sensitive to policy changes, soaring nearly 8 basis points to 3.53%. U.S. stock index futures continued to rise to intraday highs, while the dollar fluctuated.

John Briggs, Head of U.S. Rates Strategy at Natixis, said, “The market initially expected weak data, but the results were quite the opposite. As for expectations of rate cuts, given the Fed’s focus on the labor market, a decline was also anticipated.”