Non-farm Payrolls Surpass Expectations Significantly

The U.S. January non-farm payroll data greatly exceeded expectations, leading to a cooling of market expectations for a Federal Reserve rate cut. Although traders still anticipate June as the first rate cut, the probability of holding rates steady has risen to nearly 40%, significantly higher than the approximately 25% before the data release. Sarah House, senior economist at Wells Fargo, stated, “The labor market is becoming more stable rather than deteriorating rapidly. Under Powell’s leadership, the likelihood of the Fed cutting rates again continues to decline.”

However, the impressive non-farm payroll figures cannot hide the overall weakness in employment indicators. ADP data released last week showed that the private sector added only 22,000 jobs in January, indicating a weak job market and increased difficulty in job seeking. Revisions to the annual employment baseline further highlight the sluggishness: starting from March 2025, the number of new jobs was revised downward by 862,000 compared to previous estimates; for the entire year of 2025, only 181,000 new jobs are expected, far below the original estimate of 584,000 and only a fraction of the 1.459 million new jobs added in 2024. Several Wall Street economists pointed out that the aggressive trade and immigration policies of the Trump administration have continued to suppress the labor market, warning that the January surge in employment should not be viewed as a trend reversal.

Trump is unconcerned about the data revisions, tweeting, “The U.S. is once again the world’s strongest economy and should enjoy the lowest interest rates to date.” Due to trade tensions and immigration policies, the U.S. job market has gradually cooled since the second half of last year, with new jobs highly concentrated in a few sectors such as healthcare, dining, and hospitality. Tariffs have driven up prices and suppressed corporate sales and demand expectations, while a significant reduction in immigration has led to a shrinking labor supply, prompting some companies to turn to AI to replace human workers. Nela Richardson, chief economist at ADP, said, “Companies’ willingness to hire has noticeably cooled, and the employment cycle has significantly lengthened.” The performance of the job market remains a key factor for the Fed in deciding whether to cut rates in 2026.

White House economic advisor Kevin Hassett recently stated that, influenced by slowing labor growth and rising productivity, the number of new jobs in the U.S. may continue to decline in the coming months. He believes that, in the context of high GDP growth, a moderate slowdown in employment growth is reasonable; the slowdown caused by slowing population growth combined with a significant increase in productivity creates a unique economic pattern, so even weak employment data should not cause panic. This view provides a reference for Fed policy discussions and may influence subsequent decisions.

Federal Reserve Chair Jerome Powell, after the January meeting, described the U.S. economy as facing a “very challenging and unusual” situation: labor supply and demand are both slowing, leading to low employment growth but stable unemployment rates, making market signals harder to interpret. He emphasized that if the slowdown in employment is due to labor supply constraints (such as tighter immigration), it could trigger hiring bottlenecks and wage increases, further raising inflation risks and making the Fed more cautious about rate cuts; if it is due to weak demand, rate cuts would be needed to stabilize growth and support employment.

Similar to Hassett’s view, Kevin Waugh, nominated by Trump as the next Fed chair, also believes that productivity gains help curb inflation and could change the outlook for Fed policy. Powell and most Fed officials have indicated that they do not rule out the possibility of sustained high productivity in the short term but will not base monetary policy on such assumptions.