RJ Hamster
Strong Jobs Numbers Veil a Bigger Threat
The economy adds 130,000 jobs… but last year was much weaker than expected… a mixed picture from the consumer… a big picture issue to keep on your radar
This morning’s jobs report was genuinely good news – but not the whole story.
Employers added 130,000 jobs in January, comfortably beating expectations. The unemployment rate dipped to 4.3%. Wage growth remained steady, with average hourly earnings rising 0.4% on the month and 3.7% year over year.
And unlike some “good” reports where the details quietly undercut the headline, this one held up.
So yes – at first blush, this looks like the labor market finding its footing again.
But before we declare a labor-market victory (or start tossing around “soft landing achieved”), it’s worth putting today’s numbers into context.
Today’s headline number drowned out a major revision to last year’s payroll data
Each year, the BLS benchmarks its payroll survey to a more complete job count from tax records. This year’s benchmark showed that the U.S. had nearly 900,000 fewer payroll jobs than previously reported.
The result was meaningful: total job growth in 2025 was revised down sharply, from +584,000 to +181,000.
That’s not a rounding error. It means last year’s labor market was materially weaker than many believed in real time.
In that context, January’s strength looks more like a rebound than a definitive turning point.
Plus, employers are still acting cautiously…
Last week, outplacement firm Challenger, Gray & Christmas reported that U.S.-based employers announced 108,435 job cuts in January. That’s up 118% from a year ago and 205% from December. It was also the highest January total since 2009.
Here’s more from the report:
Last month, employers announced 5,306 hiring plans, the lowest total for the month since Challenger began tracking hiring plans in 2009…
It is down 13% from the 6,089 hiring plans announced in the same month last year. It is down 49% from the 10,496 hiring plans announced in December 2025.
So, while payroll growth surprised to the upside this morning, hiring intentions remain restrained.
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Meanwhile, the U.S. consumer continues to paint a mixed picture
Yesterday, we learned that retail sales were flat in December.
The so-called “control group,” which feeds directly into GDP, declined. Eight of thirteen major retail categories posted monthly drops, including furniture, clothing, electronics, and appliances – all discretionary-heavy areas.
Meanwhile, consumer sentiment remains subdued.
Last week, the University of Michigan’s preliminary February reading came in at 57.3, well below the 64.7 level recorded a year ago. Notably, sentiment improved among households with significant stock holdings, while remaining weak among those without.
This is the K-shaped pattern we’ve discussed before: asset owners are benefiting from strong markets, while middle- and lower-income households continue to feel squeezed by entrenched high prices.
So, yes, today’s jobs report was encouraging. But the broader economic picture remains uneven.
A new lens for how to interpret all this
Let’s zoom out…
Today’s strong labor data doesn’t contradict the idea that the economy is changing in structural ways. In fact, it may help explain why we can see decent payroll growth alongside cautious corporate behavior.
Increasingly, companies don’t need to slash headcount to protect their margins. They can lean on automation and AI to boost productivity, streamline workflows, and reduce hiring costs – all while maintaining output and earnings.
The clearest examples of this are coming from the tech world.
Let’s go to Forbes from last week:
According to Databricks’ newly released State of AI Agents report, AI agents now create 80% of databases and 97% of test and development environments on the platform.
Just two years ago, agents barely registered in database activity, with human developers handling nearly all of that work.
The shift signals that AI is no longer confined to copilots, dashboards, or analytics layers.
We’re watching certain categories of work being reshaped in real time. They’re not necessarily being eliminated overnight, but altered in ways that reduce labor needs over time.
And while that doesn’t mean fewer jobs today, it does hint at the potential for fewer human-filled jobs tomorrow since productivity gains can increasingly come from AI.
This matters – and ties into a far bigger conversation that we’ve been tracking here in the Digest…
Keep this on your radar
In the old economic model, the worker/productivity tradeoff came with a built-in release valve…
Yes, automation displaced workers. But over time, those workers typically shifted into new jobs and industries. Human-based productivity rose, wages eventually followed, and workers kept consuming – pushing the economy forward.
That feedback loop is what made modern capitalism work…
Labor earned income → income drove consumption → consumption drove corporate profits → profits funded investment → investment created more jobs.
Over the last few months, I’ve been making the case that AI is weakening that loop because, unlike prior waves of automation, it increasingly affects skilled knowledge work. And, historically, this has formed the backbone of the modern middle and upper-middle class.
Now, from an investor’s perspective, this is powerful.
AI allows companies to do more with less. Costs come down. Output goes up. Margins improve. Earnings can hold up – or even grow – despite slower hiring or outright job losses.
This is exactly the dynamic our experts have been flagging and urging investors to take advantage of.
For example, legendary investor Louis Navellier recently released a research package on what he calls “Stage 2” of the AI boom – the companies building the infrastructure that enables AI adoption, from chips to networking to software.
You can read more from Louis on that opportunity here.
But remove your “investor” lens and replace it with an “economics” lens, and we run into a question…
Workers aren’t just inputs into the economy – they’re also the demand side of it.
They’re the consumers who buy the products, subscriptions, services, and experiences that ultimately turn productivity into revenue.
So, what happens if/when our economy no longer requires human workers?
AI can replace labor… but it cannot replace consumption
An AI-based economy can become incredibly efficient at producing goods and services. But if fewer people earn a stable income – or if wage growth lags productivity for long enough – then demand eventually becomes the constraint.
In prior Digests, I’ve made an analogy to Ernest Hemingway’s novel The Sun Also Rises. When asked how he went bankrupt, a character replies: “Two ways. Gradually, then suddenly.”
Today’s strong labor data suggest we are still firmly in the “gradually” phase of this transition.
Payrolls are growing. Wages are rising. The unemployment rate is low. On the surface, the traditional labor model still appears intact. But beneath that surface, we need to watch out for a meaningful shift.
Companies are investing heavily in AI infrastructure. They are restructuring teams. They are leaning more aggressively on automation to drive efficiency. And they are doing so while hiring plans remain historically subdued.
That combination matters because structural transitions rarely announce themselves with a single jobs report. They unfold gradually – through subtle changes in hiring patterns, productivity metrics, and the composition of work.
The labor market doesn’t crack all at once, it evolves. And that evolution can look stable for quite some time.
So, let’s welcome today’s strong print – but also place it in context
We’re in the early innings of a shift where productivity growth will increasingly come from AI rather than additional human labor.
If that shift accelerates meaningfully, it raises longer-term questions about wage growth, job formation, and ultimately, consumer demand.
These aren’t immediate problems. But they are issues to watch – for your portfolio today, and for the broader economy tomorrow.
Gradually… then suddenly.
We’ll keep you updated here in the Digest.
Have a good evening,
Jeff Remsburg
