January Hiring Outpaces Expectations, Unemployment Falls

Key Takeaways

• The unemployment rate fell to 4.3% in January, and the economy added more jobs than economists expected—trends powered by the healthcare sector.
• Wage growth and the average workweek ticked up slightly from December, driving optimism around household income gains.
• Analysts expect the Fed to maintain its current interest rate range.

The job market started 2026 on a high note, with the unemployment rate edging lower and hiring outpacing expectations, but the gains are limited to a few key areas.

Despite forecasts for a softer report, Morningstar senior economist Preston Caldwell says the data shows the labor market is holding up better than expected: “The latest figures show the weakening in the labor market may have ceased.”

The unemployment rate fell to 4.3% in January, slightly down from December’s reading. The economy added 130,000 jobs, more than double the amount added in December and above consensus expectations. The healthcare sector was the main driver, followed by social assistance and construction. On the flip side, the federal government and financial activities sectors saw the most losses.

While the headline hiring numbers were strong, Ben Ayers, a senior economist at Nationwide Insurance, says he’s concerned that job growth remains highly concentrated. While he expects hiring to pick up in the second half of 2026, Ayers thinks jobs gains need to happen across the board. “The labor market is not booming, and we’re not seeing widespread job growth,” he says. “But we’re not falling off the table either.”

January Jobs Report Key Stats

• Total nonfarm payrolls rose by 130,000 after rising by 50,000 in December.
• The unemployment rate fell to 4.3% in January.
• In January, average hourly wages rose by 15 cents, or 0.4%, to $37.17.

Healthcare Dominates January Hiring Gains

The healthcare sector has continued its strong performance from 2025, leading January hiring with 82,000 new jobs. “This report speaks to how it continues to be the engine of hiring in the United States,” says Tiffany Wilding, managing director and economist at PIMCO.

Employment in other sectors—including manufacturing, retail, professional services, and hospitality—remained near flat. While Nationwide’s Ayers says a falling unemployment rate is a strong sign, the concentration shows a persistent “tight” labor market. “There’s some weakness under the surface, but some of the headline numbers were more positive than we expected.” He’s watching for private sector job gains outside of healthcare, which could signal an expanding and healthy economy.

Wages and Hours Worked Ticked Up

While hiring outside of healthcare remains slow, upticks in wage growth and hours worked are positive signals for American workers, according to LPL Financial chief economist Jeffrey Roach. “This may indicate that ‘low hire, low fire’ means employers are more inclined to add hours instead of headcount,” he says.

Wage growth was 0.4% in January, a slight uptick from December, and the average workweek increased by 0.1 hours. The modest gains are meaningful for household income and the broader economy, says Nationwide’s Ayers. “We didn’t add as many jobs in a lot of sectors, but those that were working got paid more and worked more hours,” he says. “That adds up to a stronger total income increase for January than we were expecting, and that’s really what drives spending and overall economic activity”

What Does This Mean for the Fed?

Given January’s strong showing in the labor market, economists expect the Federal Reserve to hold interest rates steady at its upcoming March meeting. Ayers says the latest report is evidence of a stable economy, which offers the central bank little reason to provide stimulus with a rate cut.

CME’s FedWatch tool shows more than 90% of market participants expect rates to remain in the 3.50%-3.75% range, while the remaining sliver predicts a quarter-point cut.

PIMCO’s Wilding also expects the Fed to keep interest rates where they are, especially given Friday’s January inflation report, which is expected to show persistent inflation. “The Fed is comfortable with where monetary policy is right now,” she says. “They’re going to need to see more evidence that inflation is actually moving back down to target to consider a rate cut, assuming the labor market stays stable.”