February 13, 2026
Employment climbed by 130 thousand in January but that includes a loss of 42 thousand government workers. Private sector employment jumped by 172 thousand. Payroll employment had been expected to climb by 30 thousand. At the same time the nonfarm workweek rose 0.1 hour. In January not only were there far more workers hired than had been expected, but also they worked longer hours. Output appears to have jumped sharply in the initial month of 2026 and first quarter GDP growth is likely to be 3.5-4.0%. That would be the fourth consecutive quarter when GDP growth has been between 3.5-4.0%. So where is the slowdown? Almost everybody expects GDP growth to slow in 2026. For example, in December the Fed thought 2026 GDP growth would be 2.3%. If first quarter growth comes in hot and growth for the year seems likely to be far in excess of what the Fed believed just two months ago, the prospect of additional Fed easing moves any time soon seems remote.
As noted, payroll employment rose by 130 thousand in January which includes the loss of 42 thousand government workers. Private employment rose by 172 thousand. In the past three months private sector employment has risen on average by 103 thousand workers every month. That is the fastest growth in employment in a year. In 2019, before the pandemic distorted virtually every economic statistic, jobs growth averaged 148 thousand per month. So while not particularly robust, jobs growth today is no longer anemic.
In addition, the nonfarm workweek rose 0.1 hour in January to 34.3 hours. Not only was there a far larger than expected number of workers, they were also working longer hours. This means that output almost certainly rose far more sharply than anticipated in January. Given all of the above we have boosted our first quarter GDP forecast from 2.8% a week ago to 3.8%, and growth for the year as a whole to 3.1%
Is 3.1% GDP growth for the year a problem? Probably not. If one thinks the economy’s potential GDP growth rate (our economic speed limit) is 2.0%, 3.1% GDP growth this year is excessive and clearly inconsistent with a series of easing moves. One might even contemplate tightening. But what if, as we have argued for some time, rapid gains in productivity caused by AI have lifted potential growth to 3.0%? In that case, 3.1% GDP growth is both sustainable and unlikely to trigger a faster rate of inflation. The economy does not need lower rates. At 3.6% the current funds rate is about where it should be.
Not only did we get the employment data for January last week, the BLS also included the annual benchmark revision which significantly cut jobs creation in 2025 from 584 thousand to 181 thousand. Jobs growth was weak prior to the revision and was even weaker afterwards. But so what? The reduced employment gains last year were primarily in the first four months of the year. In the final eight months of the year jobs growth was largely unrevised. In other words, the downward revision to payroll employment growth tells us very little about what is happening to the labor market today. It currently seems to be showing a few signs of gathering momentum.
Reduced jobs growth presumably implies slower GDP growth. But we already know that GDP growth for 2025 was 2.8% and it climbed by roughly 4.0% in each of the final three quarters of the year. GDP is calculated from different sources of information and will not be revised much. If that is the case, why should we care about reduced jobs growth that occurred a year ago? It is irrelevant.
What we should have learned this past week is that the economy is continuing to expand at a robust rate as we move in the early part of 2026. Despite a widespread belief that GDP growth should slow this year, it is continuing to defy expectations.
Stephen Slifer
NumberNomics
Charleston, S.C.
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