Flash Report: January Jobless Data May Signal Improving Labor Market
KEY TAKEAWAYS
- The U.S. unemployment rate ticked down to 4.3% in January from 4.4% in December. More precise data show the rate declined to 4.283% from 4.375%, respectively.
- Fewer people losing or leaving their jobs and becoming unemployed primarily drove the drop in January’s reading.
- The decline in unemployment and stronger-than-expected payroll gains in January suggest that the labor market may be emerging from the “low hire, low fire” stasis of 2025.
Unemployment
January 2026
4.283%
Precise Rate
Unemployment continued its downward trajectory in January, falling from 4.5% in November and 4.4% in December. (See the FRED chart above.) Although the jobless rate had increased during 2025, its level remained moderate by historical standards. Total nonfarm employment growth rebounded to 130,000 jobs in January, beating market expectations. A 172,000 job increase in private payrolls was partially offset by a loss of jobs in the public sector. The combination of declining unemployment and stronger-than-anticipated job creation may indicate the labor market is transitioning away from the “low hire, low fire” conditions that prevailed in 2025.
Following standard annual practice, the Bureau of Labor Statistics revised its 2025 data, lowering nonfarm employment growth for the year from 584,000 jobs to 181,000 jobs—a mere 0.1% of total employment. The unemployment rate increased marginally in 2025. The steady jobless rate despite weak job gains reflects a simultaneous deceleration in the growth of the labor supply, likely driven by sharply lower immigration flows in 2025. These revisions showing virtually no net job creation make relatively strong growth in gross domestic product last year all the more surprising.
The following analysis focuses on how estimated flows into and out of unemployment during January affected the overall unemployment rate.
DATA HIGHLIGHTS
- While the headline unemployment rate fell to 4.3% in January, the unrounded rate shows a slightly smaller decrease* from December of 0.09 percentage points.
- This modest decline stemmed primarily from a drop in the number of people losing their employment or leaving their jobs and becoming unemployed.
| Average Monthly Change in Unemployment Rate (Percentage Points) |
People Losing or Leaving Their Jobs and Becoming Unemployed |
Unemployed People Finding Jobs |
People Previously Not in the Labor Force Who Are Now Seeking Work |
Unemployed Workers Leaving the Labor Force (e.g. Discouraged Workers) |
|
|---|---|---|---|---|---|
| January 2026 | -0.09 | +0.82 | -1.11 | +1.17 | -0.99 |
| Last Two Months | -0.13 | +0.89 | -1.15 | +1.13 | -1.00 |
| Last 11 Months of Data (January 2025-January 2026) |
+0.01 | +0.96 | -1.10 | +1.12 | -0.98 |
| SOURCES: Bureau of Labor Statistics and Research staff’s calculations. | |||||
| NOTES: The 11 months of data don't include the months of October and November, for which data were unavailable. Data are seasonally adjusted. The overall change is based on the precise unemployment rate for these periods; for example, the unemployment rates were 4.2832% in January and 4.3751% in December. The flow components into and out of unemployment add up to the change in unemployment with a negligible residual. See Maximiliano Dvorkin and Serdar Ozkan’s St. Louis Fed On the Economy blog post “The Recent Ins and Outs of Unemployment: Using Flows to Study Labor Market Dynamics” for more information about this method. | |||||
The rate of people losing or leaving their jobs has fallen significantly below its average over the past 11 months of available data. (See the table above.) Other unemployment flow components—job finding rates and labor force transitions (people exiting or entering the labor force)—remain stable and near their historical norms.
Overall, January’s decline in unemployment and relatively robust payroll growth may point to a halt in the labor market’s deterioration and perhaps early signs of gradual strengthening.
*This post was updated to correct the direction of change in this sentence.
Citation
ldquoFlash Report: January Jobless Data May Signal Improving Labor Market,rdquo St. Louis Fed On the Economy, Feb. 11, 2026.
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