January Jobs Report Drops Wednesday — Economists Expect Tepid Gains After Government Shutdown Delay

Why Is Everyone Watching This Jobs Report?

The stakes are unusually high for the January 2026 employment report, which the Bureau of Labor Statistics will release on February 11 after a partial government shutdown pushed back the original February 6 date.

This isn't just another monthly snapshot. The January release contains the annual benchmark revisions that will recalibrate the entire 2025 employment trend, potentially subtracting 911,000 jobs from previous estimates. Meanwhile, early indicators suggest the labor market entered 2026 on shaky ground, with private payrolls adding just 22,000 positions in January according to ADP.

The report arrives as the Federal Reserve pauses rate cuts, winter storms disrupt business, and layoff announcements hit their highest January level since 2009. For employers, workers, and policymakers, the data will help answer whether the labor market is stabilizing or sliding toward something worse.

What Are Economists Forecasting for Job Growth?

The consensus is grim. Forecasters expect between 50,000 and 70,000 jobs added in January, with Goldman Sachs projecting just 45,000 and Citigroup estimating 135,000 jobs that it attributes largely to seasonal distortions.

The ADP National Employment Report, released February 4, showed private employers added just 22,000 positions in January, down sharply from the downwardly revised 37,000 in December 2025. That figure fell well below the Dow Jones consensus forecast of 45,000.

"The number would have been negative had it not been for a surge of 74,000 hires in the education and health services category," analysts noted. Professional and business services shed 57,000 jobs, the sharpest loss since August 2024, while manufacturing dropped 8,000 positions, extending a losing streak that began in March 2024.

The broader picture shows a labor market stuck in a "low-hire, low-fire" holding pattern. December 2025 payrolls rose by just 50,000, with the unemployment rate ticking down to 4.4%. Average hourly earnings increased 3.8% year-over-year, barely outpacing inflation.

J.P. Morgan strategists expect the first half of 2026 to deliver uncomfortably slow growth, with unemployment potentially peaking at 4.5% early in the year. The Chicago Fed's real-time unemployment forecast for January stands at 4.36%, down slightly from December's 4.4%.

How Will Benchmark Revisions Change the Jobs Picture?

The annual benchmark revisions, which the BLS conducts each year to align payroll estimates with comprehensive tax records, are expected to subtract 911,000 jobs from the March 2025 employment level. That represents a downward revision of 0.6% of total nonfarm employment.

"More comprehensive tax records suggest March 2025 employment levels may have been 911,000 lower than the current published value," the BLS preliminary estimate noted in August 2025.

The final benchmark revision will be implemented with the January 2026 release, updating historical data on payroll employment, wages, and hours. Over the past 10 years, benchmark revisions have averaged 0.2% of total nonfarm employment in absolute terms.

These revisions matter because they reshape our understanding of 2025. Instead of steady job growth, the revised data may show a labor market that was weaker than initially reported, supporting arguments that the Fed should have cut rates earlier or more aggressively.

The annual benchmark process compares Current Employment Statistics survey estimates with comprehensive counts from the Quarterly Census of Employment and Wages, which includes unemployment insurance tax records covering roughly 97% of civilian employment.

Which Sectors Are Hiring and Which Are Cutting Jobs?

The employment landscape is splitting into clear winners and losers.

Healthcare dominates hiring. Education and health services added 74,000 positions in January according to ADP, with healthcare adding 38,500 jobs in December. Nurse practitioners, data-driven care coordinators, and medical services managers rank among the fastest-growing roles.

The Bureau of Labor Statistics projects healthcare and social assistance will add roughly 2.0 million jobs between 2024 and 2034, the largest gain of all 20 sectors. An aging population and ongoing demand for outpatient and home-based care are driving this growth.

Retail continues bleeding jobs. Retail trade shed 25,000 positions in January, the largest sectoral decline for the month. The sector notified 33,200 employees of layoffs, up from 15,000 in December, primarily due to Amazon's 16,000 job cuts announced late in January.

Professional and business services are struggling. The sector lost 57,000 jobs in January, the sharpest decline in 18 months. Analysts attribute the losses to AI adoption and corporate restructuring as companies cut administrative support and hybrid work reduces demand for office services.

Manufacturing keeps shrinking. Manufacturing shed 8,000 jobs in January, continuing a losing streak that began in March 2024. Despite tariff policies aimed at reshoring production, employers cut 72,000 manufacturing positions between April and December 2025.

Food services and construction show resilience. Food services and drinking places added 27,000 jobs in December, while construction gained 9,000 positions in January. Semiconductor fabrication, EV/battery production, and clean energy infrastructure are fueling construction demand, with major projects expected to create hundreds of thousands of jobs through 2027.

Government employment plummets. Federal employment dropped by 271,000 positions between January and November 2025, a 9% decline. The Trump administration's mass reductions continued into 2026, with agencies required to prove workforce reductions by March 31 under new merit hiring plan requirements.

What's Behind the Wave of January Layoffs?

January 2026 marked the worst start to a year for layoff announcements since the global financial crisis. Challenger, Gray & Christmas reported that U.S. employers announced 108,435 layoffs in January, up 118% from January 2025 and 205% from December 2025.

"The total marked the highest for any January since 2009, while the economy was in the final months of its steepest downturn," the Challenger report noted.

About 40% of January's layoff announcements came from two companies: Amazon's 16,000 job cuts and UPS's 30,000 planned reductions. But the layoffs extended across sectors, with artificial intelligence cited for 7,624 job cuts, representing 7% of total cuts.

Is AI actually replacing workers? The answer is complicated. Companies from Amazon to Pinterest to Dow announced layoffs citing AI capabilities, but Forrester research found that 55% of employers regret laying off workers for AI, often betting on future promises rather than proven technology.

"Companies are laying off staff, insisting artificial intelligence will 'do more with less' — yet they haven't found ways to deploy AI at scale," Harvard Business Review reported. The phenomenon, dubbed "AI-washing," suggests many firms are cutting costs under the guise of technological transformation that hasn't materialized.

Winter storms disrupted hiring and spiked unemployment claims. Initial jobless claims jumped by 22,000 to 231,000 in the final week of January, sharply above expectations of 212,000 and marking the largest magnitude in nearly two months.

"The rise in claims was attributed to business disruptions following the series of winter storms across multiple parts of the country," analysts noted. Pennsylvania, New York, and New Jersey saw sharp increases, with notable rises in Illinois, Missouri, Ohio, and Wisconsin.

Tariff uncertainty is freezing hiring decisions. The average monthly job growth in 2025 was the lowest in decades outside of recession years. "With little clarity over Trump's next move, businesses have paused hiring plans — or, in some cases, laid off workers," University of Central Florida economist Sean Snaith told CNN.

Yale's Budget Lab estimates that the unemployment rate at the end of 2026 will be 0.7 percentage points higher than it would have been without 2025 tariffs, with payroll employment approximately 1.3 million lower.

Hiring plans hit record lows. U.S. employers announced plans to hire just 5,306 workers in January, the lowest total ever for the month of January since Challenger began tracking hiring announcements in 2009. Planned hiring dropped 13% from January 2025 and fell 49% from December.

How Is the Federal Reserve Responding to These Jobs Numbers?

The Federal Reserve is watching closely but maintaining a cautious stance. At its January 2026 meeting, the Fed held its key interest rate steady at a range between 3.5% and 3.75%, pausing its rate-cutting cycle after three consecutive cuts in 2025.

"Job gains have remained low, and the unemployment rate has shown some signs of stabilization," the Fed statement noted. "However, the labor market is fragile, with private payroll employment growth slowing to about 30,000 per month in the fourth quarter."

Inflation remains elevated, running closer to 3% than the Fed's 2% target, which complicates the picture. The Fed is balancing above-target inflation with a softening labor market, choosing patience over aggressive intervention.

"Consensus estimates point to average monthly job growth of around 67,000 in 2026, and strategists still expect one rate cut in 2026," J.P. Morgan reported. Markets currently expect that cut to come in June.

The Fed's December projections signaled just one 25-basis-point rate cut in 2026, a significant pullback from earlier expectations. Fed officials are waiting to see whether the weak January numbers reflect temporary disruptions or the start of a more serious labor market deterioration.

Vice Chair for Supervision Michelle Bowman noted in a January 30 speech that the outlook for the economy and monetary policy remains uncertain, with job growth and inflation both presenting challenges.

The stakes are high. If the labor market continues weakening while inflation stays elevated, the Fed faces the uncomfortable scenario of stagflation, where traditional monetary policy tools become less effective.

People Also Asked

Will the jobs report affect interest rates?

The January jobs report will influence but not immediately determine Federal Reserve interest rate decisions. The Fed held rates steady in January 2026 at 3.5% to 3.75%, pausing cuts after three consecutive reductions in 2025. Markets currently expect one 25-basis-point cut in 2026, likely in June, but persistently weak employment data could accelerate that timeline. However, inflation running near 3% complicates the Fed's calculus, as cutting rates too aggressively while prices remain elevated risks reigniting inflationary pressures.

What sectors are expected to grow in 2026?

Healthcare and social assistance lead all sectors, with the BLS projecting roughly 2.0 million new jobs between 2024 and 2034, driven by an aging population and demand for outpatient care. Semiconductor fabrication, EV/battery production, and clean energy infrastructure are fueling construction growth, with major projects expected to create hundreds of thousands of jobs through 2027. Technology roles tied to AI and cybersecurity, advanced manufacturing in semiconductors, and skilled trades remain in high demand. Meanwhile, retail, professional services, and manufacturing continue shedding positions.

How are wages changing for workers?

Average hourly earnings rose 3.8% year-over-year in December 2025, modestly outpacing the 2.7% inflation rate. Between December 2024 and December 2025, nominal wages grew $45 per week, while real wage growth after inflation was just 0.92% or $12 per week. The advantage of switching jobs has nearly disappeared: job stayers saw wages grow 4.1% annually in mid-2025, compared to 4.0% for job switchers, a reversal from 2023 when changers received 7.7% increases versus 5.5% for stayers. ADP data shows job-changers' pay growth accelerated to 6.6% in January 2026 from 6.3% in December, while stayers saw 4.5% growth, suggesting some premium remains for switching despite a cooling market.

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