An Awesome Employment Report
Economists predicted Donald Trump’s immigration policies would starve employers of workers and hit an economic speed limit.
The rapid growth of the economy in the second and third quarters of 2025 was seen as something of an anomaly. Many analysts saw it as unsustainable given the constraints on the growth of the labor force created by baby boomer retirements, deportations, and the slowdown in immigration. As Federal Reserve Chairman Jerome Powell said in defending his cautious outlook, “the lore is that when GDP and the labor market get into an argument, in the end, labor market is more—the labor market data is more reliable.”
That bit of lore turns out not to have been true.
The economy added 130,000 jobs in January, twice as many as expected. Even more impressive, the private sector added 172,000 jobs while the government sector shed 42,000 employees. The acceleration of America’s economic growth under President Trump is driving up hiring without the need for the arrival of hundreds of thousands of workers crossing our borders in defiance of our immigration laws.
A worker wears a “Make America Great Again” sticker on a hard hat while attending a “Champion of Coal” event in the East Room of the White House in Washington, DC, on Feb. 11, 2026. (Graeme Sloan/Bloomberg via Getty Images)The Great Reprivatization
It’s likely that far from being a drag on growth, the downsizing of the government sector is boosting it. Private sector hiring was likely enabled in January by the availability of workers whose labor was formerly controlled by the government. Over the 12 months ending in January, the federal government’s payrolls have contracted by 324,000 workers, creating a reservoir of labor that many economists never included in their models of the economy. The economy is being “reprivatized,” as Treasury Secretary Scott Bessent promised last year.
This is the most significant annual peacetime contraction of federal employment outside of the decennial census cycle. The closest parallel is the post-World War II demobilization, when millions shifted from military service and war production back to the private economy.
Even after the previously scheduled revisions to the last two years of employment estimates, the private sector added 443,000 jobs last year, an average of 36,900 a month. That’s significantly above estimates of how many jobs the economy needs to generate to keep the labor market stable. The federal government, meanwhile, shed an average of 27,000 each month.
Fewer Mouths to Feed
Overall, the economy added just 181,000 jobs last year, according to the new estimate, down from the earlier estimates of 584,000. While some economic pundits have argued that the downward revisions to employment estimates is a sign that the labor market under President Trump was “far weaker” than previously thought, this is mostly political blather.
In the first place, the biggest downward revision last year was for January, Biden’s last month as president, which saw a massive retraction of 159,000 jobs. Instead of adding 111,000 jobs as Biden shuffled off the scene, the economy actually lost 49,000—a complete reversal that flipped the narrative from growth to contraction. The next biggest months were, in order, February, March, and April. October, which was the worst month for jobs last year, saw an upward revision from a loss of 173,000 to a loss of 140,000. In the later half of the year, at least according to these revisions, job growth was closer to what it appeared to be.
What’s more, an economy that is adding more jobs than it needs is not “far weaker” just because the rate of growth is slower. According to Dallas Fed research, with the economy having shed around 300,000 foreign workers last year thanks to deportations and voluntary departures, an average of 25,000 per month, the healthy run rate is lower. To claim that’s a sign of weakness is like saying a household is struggling financially because they’re buying fewer groceries, when actually several family members moved out.
Further undermining the claim that the labor market was weak during Trump’s first year is the fact that wage growth was revised upward in 11 of 12 months last year. Average hourly earnings rose 3.32 percent last year, handily beating the 2.7 percent in consumer prices. Average weekly earnings were revised up for eight months of last year for a climb of 3.62 percent. This is a sign of a strong labor market, indeed one that was stronger than previously thought. The upward wage revisions combined with downward employment revisions also mean productivity per worker was higher than initially estimated, a quality over quantity story in the labor market.
Wednesday’s monthly figures showed strong wage growth continued in January, with the average weekly wage climbing 0.7 percent. The labor force participation rate rose, including in the crucial prime age worker category. The broadest measure of labor underutilization, a measure known as U-6 that includes discouraged workers and those who want to work full-time but are stuck in part-time jobs, fell from 8.4 percent to 8.0 percent. Weaker? Not even close.
Growing Through Investment, Innovation, and Productivity
One of the reasons for strong wage growth is likely strong productivity. Businesses are adjusting to a slower growth of the labor force by investing and innovating, allowing output to grow rapidly despite lower employment growth. In the third quarter of last year, productivity rose 4.9 percent, and GDP jumped 4.4 percent even while payrolls climbed by just 113,000, a 0.34 percent annualized rate of growth. That’s a stronger labor market, not a weaker one. The economy doesn’t need an endless supply of low-wage foreign workers when capital investment can substitute for labor and do so while pushing wages up rather than down.
Some have expressed concerns about the breadth of job growth in January. Admittedly, the payroll expansion was heavily concentrated in the government-adjacent healthcare and social services sector, construction, and professional and business services. But we should expect narrow job growth when the economy is at or near full employment, as sectors compete with each other for workers.
The market viewed the jobs report as strong enough to warrant a rethinking of the likely path of rate cuts this year. The odds of a March cut fell from 20 percent on Tuesday to six percent. The odds of one or more cuts by April fell to 21 percent from 41 percent. The 75 percent change the market had for lower rates by June, the first post-Powell Federal Open Market Committee meeting, dropped to 59 percent. This repricing represents the market recognizing the economy’s underlying strength despite the headline revisions that critics focused on.
The bond market’s repricing tells you everything you need to know about Wednesday’s report. Investors aren’t worried about an economy running out of workers. They’re recalculating for an economy that’s stronger and more productive than the pessimists predicted. The speed limit was always a myth. The real brake on growth was government bloat and dependency on low-skill and low-wage foreign labor, and those brakes are finally being released.