Great Employment Report
Economists had suggested that President Trump’s immigration policies might force employers to struggle for workers and consequently slow down the economy.
In fact, the second and third quarters of 2025 were seen as somewhat unusual. Many analysts believed this growth wouldn’t last due to challenges like baby boomer retirements and reduced immigration. Federal Reserve Chairman Jerome Powell defended his cautious stance by stating, “When GDP and the labor market come into the debate, the conventional wisdom is that ultimately the labor market is better; the labor market data is more reliable.”
However, that notion seems to have been incorrect.
The economy added 130,000 jobs in January, which is twice what analysts expected. Even more remarkable is that the private sector created 172,000 jobs, while the government sector lost 42,000. Economic growth within the U.S. has picked up under Trump, finding ways to add jobs without relying on a significant influx of foreign workers.
Re-Privatization
Interestingly, the reduction in government jobs appears to be fostering rather than hindering growth. January’s private sector hiring likely benefited from workers who were previously in government roles. Over the past year, federal payrolls have decreased by 324,000, resulting in a labor pool that many economists hadn’t factored into their models. We’re witnessing a sort of “re-privatization” as Treasury Secretary Scott Bessent hinted last year.
This decline in federal employment is significant, matching some of the largest peacetime reductions outside of the census cycle. The closest historical comparison is the demobilization after World War II when many returned to civilian jobs.
Even with updates to employment estimates over the last two years, the private sector added about 443,000 jobs last year, averaging about 36,900 per month—well above the estimates needed for labor market stability. Meanwhile, the federal government has been shedding around 27,000 jobs monthly.
Fewer Mouths to Feed
Overall, the economy only added 181,000 jobs last year, a drop from the earlier estimate of 584,000. Some economists argue that this adjustment indicates a much weaker job market under Trump, but this seems mostly politically motivated.
The most significant downward revision occurred in January, during Biden’s final month where 159,000 jobs were lost instead of the 111,000 addition initially reported. This turnaround shifted the narrative from growth to decline. Moreover, other months experienced similar revisions, particularly February, March, and April. Interestingly, October, which was the worst month for job additions last year, was adjusted from a loss of 173,000 to a loss of 140,000.
So, an economy that’s creating more jobs than needed shouldn’t be deemed “weaker” just for growing slowly. Last year, the U.S. lost about 300,000 foreign workers, roughly 25,000 monthly. Labeling the economy weak due to immigration issues feels misleading, like blaming a household’s money problems on one person moving out.
Further supporting the notion of a stronger market during Trump’s first year are facts regarding wage growth: last year, it was revised upward in 11 out of 12 months. The average hourly wage increased by 3.32%, surpassing the consumer price index of 2.7%. Average weekly earnings also saw upward revisions, showing a 3.62% increase over the last eight months. This suggests a robust labor market, perhaps stronger than previously assumed. The combination of higher wage growth and fewer jobs indicates improved productivity per worker—highlighting quality over sheer numbers.
Recent data continues to reflect strong wage growth, with average weekly wages rising by 0.7%. Labor force participation, especially among prime-age workers, has also seen increases. The overall measure of workforce underutilization dropped from 8.4% to 8.0%, suggesting the job market isn’t weak at all.
Growth Through Investment, Innovation, and Productivity
One potential reason behind the significant wage growth is increased productivity. Businesses are adapting to slower labor force growth by investing and innovating, which allows production to expand despite the modest employment growth. In the third quarter of last year, productivity surged by 4.9%. Even with just 113,000 additional jobs, GDP grew by 4.4%, an annualized growth rate of 0.34%. Therefore, a tight labor market can actually strengthen it. If investments can effectively replace labor, the economy may not need a constant influx of low-wage foreign workers.
Some have raised concerns about job growth rates in January. It’s true that labor cost increases were primarily concentrated in sectors like health, social services, construction, and professional services. However, employment growth is expected to narrow when the economy nears full employment, as sectors will vie for available workers.
The market received the jobs report positively, adjusting expectations for future rate cuts. The likelihood of a March rate cut dropped to 6% from 20%, and the chance of at least one cut by April decreased from 41% to 21%. By June, when the Federal Open Market Committee meets, the anticipated reduction in interest rates has fallen from 75% to 59%. This adjustment reflects the market’s perception of economic resilience, despite critics pointing out the headline corrections.
Bond market reactions provide clarity surrounding Wednesday’s report. Investors aren’t anxious about the economy running low on workers; instead, they seem to be recalibrating expectations for a more robust, productive economy than initially predicted. The real constraints on growth may have been a large government and reliance on low-wage foreign labor, but those barriers now seem to be lifting.
