Turns out the U.S. economy didn’t create half a million jobs last year. It was just 181,000

The unemployment rate fell to 4.3%, the Labor Department said Wednesday.

The report included major revisions that reduced the number of jobs created last year to just 181,000, a third the previously reported 584,000 and the weakest since the pandemic year of 2020.

The job market has been sluggish for months even though the economy is registering solid growth.

But the January numbers were much stronger than the 75,000 economists had expected. Healthcare accounted for nearly 82,000, or more than 60%, of last month’s new jobs. Factories added 5,000, snapping a streak of 13 straight months of job losses. The federal government shed 34,000 jobs.

Average hourly wages rose a solid 0.4% from December to January.

The unemployment rate fell from 4.4% in December as the number of employed Americans rose and the number of unemployed fell.

“The surprisingly strong job gains in January were driven mainly by health care and social assistance,” Heather Long, chief economist at Navy Federal Credit Union, wrote in a commentary. “But it is enough to stabilize the job market and send the unemployment rate slightly lower. .. but it is stabilizing. That’s an encouraging sign to start the year, especially after the hiring recession in 2025.”

Weak hiring over the past year reflects the lingering impact of the high interest rates the Federal Reserve engineered in 2022 and 2023 to counter surging inflation, as well as Elon Musk’s purge last year of the federal workforce. The chaos from President Donald Trump’s erratic trade policies also made businesses less willing to hire.

Dreary numbers had been coming in ahead of Wednesday’s report. Employers posted just 6.5 million job openings in December, fewest in more than five years.

Payroll processor ADP reported last week that private employers added an unexpectedly weak 22,000 jobs in January. And the outplacement firm Challenger, Gray & Christmas reported that companies slashed more than 108,000 jobs last month, the most since October and the worst January for job cuts since 2009.

Nicole Bachaud, a labor economist with ZipRecruiter, said new data Wednesday could signal “the start of a revival in the labor market.”

Hiring is getting a boost, she noted, from three interest rate cuts by the Fed last year. Trump’s tariffs are proving somewhat smaller and more predictable than they appeared last spring, giving employers more confidence to hire. Bachaud also noted that black unemployment, which she sees as a sign of where the overall job market might be headed, fell last month to 7.2%, lowest since July.

Samuel Tombs of Pantheon Macroeconomics remains skeptical, attributing January job gains partly to unusually warm weather that boosted hiring. He noted that construction firms added a strong 33,000 jobs last month. “We think it is premature to conclude the labor market has decisively turned a corner,” he wrote.

Last year’s sluggish job market didn’t match the economy’s performance.

From July to September, America’s gross domestic product – its output of goods and services – galloped ahead at a 4.4% annual pace, the fastest in two years. Consumer spending was strong, and rising exports and tumbling imports boosted growth.

Economists are puzzling out whether job creation will eventually accelerate to catch up to strong growth, perhaps as President Donald Trump’s tax cuts translate into big tax refunds that Americans start spending this year. But there are other possibilities. GDP growth could slow and fall into line with a weak labor market or advances in AI. Automation may mean that the economy grows without as many jobs.

At West Shore Home, a remodeling company in south central Pennsylvania with 3,000 employees, business is brisk. West Shore plans to hire about 200 workers in 2026, similar to last year.

Many homeowners can’t afford to, or don’t want to sell after locking in cheap mortgages years ago. Instead, they are improving the places they own.

As with many other businesses, artificial intelligence has arrived at West Shore Home. Jessica Bittinger, chief human resources officer, said the company is starting to use AI to simplify tasks such as scheduling projects. She doesn’t expect the company to cut jobs because of AI, but she also believes she won’t have to hire as many people in the future. “It’s helping our employees work smarter, not harder,” she said.

The jobs report Wednesday could lead the Fed to further delay more cuts to its key interest rate. Some Fed officials have specifically argued that last year’s weak hiring is shows that borrowing costs are weighing on growth and discouraging companies from expanding. A pickup in hiring, if sustained, undercuts that view.

Fed officials signaled in December that they expect to reduce their key rate once more this year, while Wall Street investors expect two reductions, according to futures pricing.

Wednesday’s report included the government’s annual benchmark revisions, meant to take into account the more-accurate jobs numbers that employers report to state unemployment agencies. They cut 898,000 jobs from payrolls in the year ending March 2025.

The revisions, which can reflect more accurate information about businesses that opened or closed, trimmed the tally of jobs created from April through December last year to 120,000 (or 13,000 a month) from an originally reported 251,000 (or 28,000).

Despite recent high-profile layoffs, the unemployment rate has looked better than the hiring numbers.

That is partly because President Donald Trump’s immigration crackdown has reduced the number of foreign-born people competing for work.

As a result, the number of new jobs that the economy needs to create to keep the unemployment rate from rising has tumbled. Researchers at the Brookings Institution believe it could now be as low as 20,000 and headed lower.

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AP Retail Writer Anne D’Innocenzio in New York and AP Economics Writer Christopher Rugaber contributed to this report.