Speech by Governor Waller on the economic outlook

… <p>The January employment report included the usual annual revisions that affected the payroll data for all of 2025, which adjusted the picture we have of the labor market going into 2026. As expected, the data were revised down, turning 2025 from a year with relatively weak job creation into one of the weakest years in decades outside of a recession. For the year, 181,000 new jobs were reported. This amounts to an average of only 15,000 a month. But 2025 was even worse than that, because even after those revisions, there likely remains an upward bias in the payrolls from April through December and the correction to those numbers won't happen until 2027.<a href="#fn3" title="footnote 3">³</a><a name="f3"></a> Accounting for those upcoming revisions, it seems clear that payroll employment in the United States probably fell in 2025, only the third year that has happened, unrelated to a recession, since 1945. There is no doubt that the decline in net immigration last year has significantly lowered labor force growth and thus the number of new jobs that are needed to reflect a healthy labor market. However, last year the labor force grew by 2.9 million while payroll gains were much less.</p> <p>There has been much discussion of the current low-hire, low-fire labor market. A relatively low level of layoffs means that slow hiring is not as bad as it looks. Even so, I continue to believe that close to zero net job creation over 2025 indicates a weak, and fragile job market, and this is some important context for the data we received in January.</p> <p>The labor data that came out the week before the jobs report was bleak—Job Openings and Labor Turnover Survey data showed a dramatic decline in job openings and the payroll services firm ADP reported January was a lackluster month of hiring with job gains of only 22,000. So, when the jobs report showed that the total number of jobs grew by 130,000, and that private sector payroll growth was even stronger at 172,000, this was a welcome surprise. Even with downward revisions to the previous two months, the three-month average of total payroll increases was 73,000, which is above current estimates of breakeven net hiring. And unemployment did fall last month though it is still higher than a year ago. This report was clearly a surprise to the upside and suggests that the labor market may be turning a corner.</p> …