Market Minute: February 11, 2026 - January’s Employment Report: A Cooling but Stable Economy
The employment report was released this morning, including nonfarm payroll data, so let’s break it down.
The unemployment rate held steady at 4.3%, showing little change from the previous month. Total non-farm payroll employment increased by 130,000 in January.
This was stronger than many forecasts and well above the Dow Jones estimate of 55,000.
Sector Breakdown
Sectors with Job Gains:
Health care: +82,000 jobs
Social assistance: +42,000 jobs
Construction: +33,000 jobs
These sectors continued to drive employment growth.
Sectors with Job Losses:
Federal government
financial activities
It is important to note that this release was delayed until February 11 due to a brief federal government shutdown from January 31 to February 4.
U6 Unemployment Measure
Another important statistic is the U6 unemployment rate, which includes individuals working part time who want full-time employment, as well as those marginally attached to the labor market.
On this broader measure, U6 unemployment edged down to 8%, a 0.4 percentage point improvement.
Overall Labor Market Conditions
On the whole, job growth is positive but modest. While the economy added 130,000 jobs in January 2026 and beat expectations, this report reflects a cooler labor market than in previous years. It is important to remember that job growth in 2025 averaged only 15,000 per month, a sharp slowdown from earlier expansions.
Overall, the labor market is not contracting, but it is no longer running hot. This is consistent with a late-cycle economy where growth continues, but at a slower and more sustainable pace.
It appears that the unemployment rate remains stable, as it has barely changed since December. A stable unemployment rate indicates that labor demand and supply are roughly in balance. This reduces recession fears but also suggests the era of ultra-tight labor markets is over.
Concentration of Job Growth
Job Growth was concentrated in a few sectors:
Strong sectors:
Health care: +82,000
Social assistance: +42,000
Construction: +33,000
Weak sectors:
Federal government and financial activities saw declines.
Manufacturing and construction had been losing jobs in late 2025 after revisions, though construction rebounded in January.
This concentration suggests the economy is increasingly dependent on service-sector growth, particularly health care. That reflects:
An aging population
Strong demand for care services
Less sensitivity to interest rates
Weakness in government and finance suggests budget tightening and slower credit activity.
Revisions and What They Signal
The revisions indicate the labor market is weaker than previously thought.
Benchmark revisions cut 2025 job growth by 898,000, showing the labor market had been cooling more than earlier data suggested. Another revision reduced last year’s total job creation to 181,000, the weakest since 2020.
The economy is still expanding, but the foundation is less robust than previously believed.
Policy Implications
Policymakers and markets will likely interpret this as a sign that the labor market is normalizing.
The Fed may have more room to ease policy later in 2026.
Wage pressures may continue to soften.
The softening in wage growth may prove positive for inflation, as wage growth is no longer outpacing inflation for many workers. This could reduce inflationary pressure. However, it also limits consumer spending power.
We are positing that the labor market is losing some of its bargaining-power tightness.
Recession Outlook: Soft Landing Scenario
As we consider the broader economy, we believe any potential recession is more likely to resemble a soft landing, based on a combination of:
Moderate job gains
Stable unemployment
Slowing wage growth
Downward revisions
Inflation pressures are likely to ease. A cooler labor market reduces wage-push inflation and hiring-related cost pressures, supporting the case for gradual Federal Reserve rate cuts later in 2026.
Consumer and Sector Outlook
We believe consumer spending will moderate. Consumers are likely to remain employed, but slower wage growth means spending will grow more slowly. Households may become more price-sensitive, which could soften demand for:
Retail
Discretionary goods
Housing
Sector hiring will likely remain divergent:
Continued hiring in health care
Uneven hiring in interest-rate-sensitive sectors (finance, construction, manufacturing)
Constrained government hiring due to budget pressures
For investors, recession risk appears lower but not eliminated. The greater risk is a prolonged slow-growth plateau rather than an imminent downturn.
Looking Ahead
The February and March employment reports will provide greater insight into the path of the economy for the remainder of the year.
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