January’s Hiring Slump Raises the Stakes for February

• ADP data showed businesses added just 22,000 jobs in January.

• That’s below last year’s average of 33,000 per month.

• These numbers point to monetary policy that’s still too tight.

January’s hiring numbers didn’t surprise; they simply reinforced the reality that the labor market is losing steam…

Earlier this week, I outlined how I see the labor market setting up. I walked through the forward‑looking signals I track to gauge what next week’s payroll report (originally scheduled for this Friday) might show. The data pointed in the same direction: January showed little evidence of a meaningful pickup.

That’s why I expect the U.S. Bureau of Labor Statistics (“BLS”) report on February 11 to reinforce the same theme. Even if the headline lands near Wall Street’s 68,000‑job forecast, that’s still miles below the typical January gain of 222,000 since 2015. That kind of weakness would force an enormous February rebound simply to claw back toward the long-term trend.

January usually gives job seekers a lift, but yesterday’s ADP update underscored the slowdown I flagged. Hiring came in at a fraction of last year’s January surge, the strongest month of 2025. If the BLS data plays out like I expect, it will strengthen the case for more rate cuts later this year and underpin the ongoing rally in the S&P 500 Index.

But don’t take my word for it, let’s look at what the data’s telling us…

Each month, ADP’s payroll report offers an early read on private‑sector hiring. It uses real‑time payroll data from millions of workers across its client base. It’s not a perfect mirror of the BLS report, but it often captures turning points in hiring momentum before the official numbers do. Markets watch it closely because big surprises, up or down, tend to reset expectations for the upcoming Nonfarm Payrolls release. At its core, ADP is a forward‑leaning signal of how businesses are actually staffing in real time.

Yesterday, ADP released its monthly hiring data for January. According to its estimates, companies brought on just 22,000 new workers last month. That was well below Wall Street’s estimate for a gain of 46,000 and follows on the heels of 37,000 jobs added in December.

That tells us 2026 is already off to a bad start. The ADP data from last year showed the economy averaged just over 33,000 job gains per month, which was a drop from the 64,000 average in 2024. More importantly, last month’s number was much weaker than the typical January gain of 204,000 since 2011…

These signals matter because they shape how the Federal Reserve responds. The numbers are telling our central bank that the labor market is still fragile. Policymakers have said they want to give recent rate cuts more time to work. Typically, that window is around six to eight months.

But our central bank can’t ignore a weakening labor backdrop. Waiting too long risks forcing more aggressive action later. Acting earlier requires less easing overall.

One way to gauge how much room our central bank has to stimulate economic growth is by looking at the real rate of interest (effective federal funds rate minus inflation). A positive number means policy is weighing on price growth, while a negative number means rates are stoking inflation. Based on the most recent Consumer Price Index (“CPI”) figures, the Fed has plenty of room to offer support…

In January, the effective federal funds rate was roughly 3.6% while inflation growth stood at 2.7%. When we subtract one from the other, we see the Fed has about 90 basis points of rate cut room before it hits the so-called neutral level, where rates are neither hurting nor helping economic growth. And given our central bank has managed that real rate to an average of -0.6% since 2000, the total cushion is closer to 150 bps.

Bottom line: if the BLS report on February 11 lines up with the trends we’re seeing, Wall Street will likely grow more confident in expecting two additional rate cuts by year end. And with plenty of room to ease further, lower rates through 2027 should help reduce borrowing costs, free up cash, and support economic growth That should underpin a steady rally in the S&P 500.

Five Stories Moving the Market:

Google parent Alphabet reported an 18% jump in fourth-quarter revenue and revealed plans to roughly double its spending on data centers and other capital projects; the company reported total revenue of $113.8 billion and an adjusted profit per share of $2.82, compared to Wall Street’s expectation for $111.4 billion and $2.63 – Reuters. (Why you should care - Alphabet and its Big Tech rivals are expected to collectively shell out more than $500 billion on AI in 2026, boosting the outlook for picks and shovels infrastructure companies)

U.S. President Donald Trump said he would have passed on Kevin Warsh as his nominee to lead the Federal Reserve if Warsh had expressed a desire to hike interest rates; Trump said there was "not much" doubt the Fed would lower rates because borrowing costs are too high currently – Bloomberg. (Why you should care – the statement could ease investor concerns about a more hawkish Fed chair)

The U.S. unveiled plans to marshal allies into a preferential trade bloc for critical minerals, proposing coordinated price floors as Washington escalates efforts to loosen China's grip on materials crucial to advanced manufacturing – Reuters. (Why you should care – backing by the U.S. and its allies would help to reduce technology supply-chain reliance on China for important technology components)

The U.S. and Iran have reached an agreement to hold nuclear talks in Oman on Friday, ending a drama over what would be discussed, and restarting a delicate diplomatic dance; this would mark the first time since last May that Washington and Tehran will hold formal negotiations over Iran’s nuclear program – WSJ. (Why you should care – the U.S. wants Iran to halt uranium enrichment, curtail its missile program, and cease supporting regional proxies)

Nvidia CEO Jensen Huang said this week’s sell-off in the shares of software companies amid concerns about AI disruption makes no sense; during an appearance at a Cisco Systems event, Huang said software products are tools, and artificial intelligence will use those tools, not reinvent them – Bloomberg. (Why you should care – Huang said his company’s adoption of software tools through AI has freed up employees to focus more on Nvidia’s core business) 

Economic Calendar:

Earnings: AMZN, ARES, BMY, CAH, CI, CMI, COP, DLR, EL, FTNT, ICE, KKR, MSTR, SONY

Germany - Factory Orders for December (2 a.m.)

France - Industrial Production for December (2:45 a.m.)

Eurozone – Retail Sales for December (5 a.m.)

BOE Monetary Policy Announcement (7 a.m.)

BOE MPC Meeting Minutes (7 a.m.)

BOE’s Bailey (Governor) Speaks (7:30 a.m.)

U.S. – Challenger Job Cuts for January (7:30 a.m.)

ECB Monetary Policy Announcement (8:15 a.m.)

U.S. - Initial Jobless Claims (8:30 a.m.)

U.S. - Continuing Claims (8:30 a.m.)

ECB’s Lagarde (President) Speaks (8:45 a.m.)

Fed’s Bostic (Atlanta, Non-voter) Speaks (10:50 a.m.)

BOC’s Macklem (Governor) Speaks (12:25 p.m.)

Fed's Balance Sheet Update (4:30 p.m.)