The “experts” were wrong yet again as the January jobs report smashed expectations with every metric beating forecasts.
Payrolls were up a whopping 130,000, almost twice what the economy needs to cover population growth. Even better, the labor force grew by almost 400,000 as more people decided to look for work and the number of people saying they were employed jumped by more than half a million. That was enough to force the unemployment rate back down to 4.3%.
There was more good news on the workweek. Hours worked rose, which predicts future hiring. It’s also a result of people exchanging multiple part-time jobs for better-paying full-time work. Sure enough, we saw a 450,000 drop in part-timers who couldn’t find full-time work, while the dreaded U-6 underemployment (which even includes people who’ve given up on finding a job altogether) crashed by 600,000 people.
Even manufacturing rose, hopefully breaking a trend that started three years ago in the middle of the Biden administration. Construction jumped by 33,000 last month, driven by factory development. This trend could continue as factory building surges under President Donald Trump.
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One of the biggest gains was average hourly earnings, which grew 5% annualized. That’s close to twice official inflation — it’s actually six times inflation according to Truflation’s current numbers.
That’s a stark contrast to the Biden years when prices outpaced wage growth. Under President Joe Biden, the average American’s weekly paycheck, adjusted for inflation, actually shrunk 4%. Trump’s made half of that back in his first year alone.
Previous economic data pointed to a lot of labor market weakness, at least on paper, because of factors like deportations and federal government layoffs — which are counted as jobs. There’s also Biden’s zombie cronies — private businesses that got government-backed loans for projects that were never going to be economically viable or profitable — going bust, and slower federal spending compared to the Biden spending orgy. Meanwhile, the factors that boost jobs, like Federal Reserve rate cuts and trillions of dollars in new factories, all take time.
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Well, this job report says we’re going from the pain to the gain. The private sector added a whopping 172,000 jobs while government shrunk by 42,000. You have to go all the way back to 1966 — an incredible six decades ago — to find a time when the federal bureaucracy was smaller than it is today.
That’s not to say it’s all rosy. There was a much-anticipated massive downward revision of almost 900,000 jobs from the notorious Bureau of Labor Statistics, covering the 12-month period ending with March 2025, so that’s the last 10 months of Biden and the first two months of Trump. It turns out that during Biden’s last year, job growth was overestimated by more than a million fake jobs.
The culprit is the BLS’s so-called birth-death models of company formation that use data from the COVID-19-era explosion of millions of fake businesses set up to steal federal money they were handing out like candy, from the Somali-run “Quality Learing Center” on down.
The other concern is AI. For a year we’ve been warning about a two-speed job market where blue-collar jobs grow from deportations and investments in new factories but white-collar work, especially at the entry level, gets slammed as AI draws closer to replacing cubicle jobs in finance, consulting, IT, journalism and more.
In fact, January finance lost 22,000 jobs — down almost 50,000 since last May. IT was roughly flat this month, but down 90,000 since its post-COVID peak. Journalists lost 12,000 last month — down 300,000 since the post-COVID peak.
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Meanwhile, construction was up 33,000 last month — driven by factory construction. Manufacturing added 5,000 and will hopefully gain steam in the months and years ahead as those factories are completed and hire workers to make products.
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This kind of Robin Hood job market is a welcome change from 40 years of blue-collar slaughter where bad trade deals and automation fired workers in manufacturing.
Still, considering most American jobs are white collar, there’s millions at risk, if only in the short run. Technological improvement always ends up creating more jobs in new industries than it eliminates, but the losses show up first, and AI-induced layoffs should start to become apparent later this year.
Overall, the job market is picking up, and it should accelerate with onshoring factories, investment, and Fed rate cuts. The question becomes: can the onshoring and rate cuts soak up AI displaced workers? If not, then we need more from Congress — specifically, cutting tax burdens and regulatory red tape for small business that employs 62 million Americans — half the population — and could employ tens of millions more if bureaucrats get off their backs.
E.J. Antoni, Ph.D., is Chief Economist and the Richard F. Aster fellow at the Heritage Foundation and a senior fellow at Unleash Prosperity.
