Last week’s jobs report said the U.S. added 130,000 jobs in January. But the more consequential news landed in the fine print: the Bureau of Labor Statistics’ annual benchmark revision drastically rewrote 2025. Payroll growth for 2025 was revised down from +584,000 to +181,000 – about +15,000 jobs per month – and the March 2025 payroll level was revised down by 898,000 on a seasonally adjusted basis.
Put differently: January’s headline gain may be real, but the “trend” we thought we were tracking for most of last year wasn’t. That helps explain why many workers’ lived experience has felt worse than the monthly payroll prints suggested.
A labor market that’s no longer collapsing… but still feels stuck
There is a plausible silver lining. The pace of deterioration may be slowing. The unemployment rate in January ticked down to 4.3%, and wage growth remained moderate. That’s the average – but the average is not the reality for everyone. Young workers and Black workers, in particular, have seen unemployment rise more during this slowdown, a reminder that labor-market softening is rarely evenly distributed.
Survey-based sentiment continues to scream “stuck.” Households might not be panicking about inflation the way they were in 2022, but they’re still cautious about jobs and finances. The New York Fed’s Survey of Consumer Expectations shows inflation expectations clustering around ~3% at the 3- and 5-year horizons, even as near-term expectations eased. And the University of Michigan’s survey shows long-run inflation expectations above pre-pandemic ranges, reinforcing the idea that “2% confidence” hasn’t fully returned.
This is what a modern “jobless expansion” looks like: output grows (helped lately by productivity and AI-linked investment stories), but the job ladder feels harder to climb – especially for entrants and switchers. We’ve “seen this movie before” in the early 1990s, early 2000s, and in the long slog after the Great Recession.
The damage from joblessness is not just short-term
The economic literature is blunt: labor-market weakness leaves scars.
Earnings scarring: Displaced workers often experience large and persistent earnings losses. Classic estimates find long-run earnings losses on the order of about 25% per year for some high-tenure displaced workers, and broader work summarizes “wage scarring” that can last many years.Lower lifetime income: Syntheses of the displacement literature put cumulative lifetime earnings losses around 20% in many contexts.Higher mortality risk: In landmark work linking administrative earnings records to death records, job displacement is associated with elevated mortality – estimates include about 10% to 15% higher annual death hazards even many years after displacement for affected groups.Mental health: A large body of research links unemployment to higher risks of depression and anxiety; systematic reviews and meta-analyses find meaningfully worse mental health outcomes during unemployment and improvement upon re-employment.Property crime: Empirical work estimates that a 1 percentage-point increase in unemployment can raise property crime by roughly 1.6% to 5%, depending on specification and setting.
These aren’t just abstract social costs. They’re macroeconomic headwinds: skill erosion, weaker future earnings power, and reduced mobility all feed back into demand.
Why housing is the canary in this confidence problem
This week’s “macro-to-housing” transmission will be visible in a familiar set of releases:
Homebuilder confidence (NAHB HMI) is due Feb. 17.Personal income/outlays and the PCE price index – the inflation report the Fed cares about most – is due Feb. 20.Key Census housing indicators (starts and new-home sales) remain tangled in release delays around the shutdown, so some housing signals will arrive late and in lumps rather than smoothly.
Here’s the basic logic: when jobs are harder to land, fewer households take big risks. Even when affordability improves at the margin, transactions are a confidence product. Renters stay put longer, first-time buyers wait, and potential sellers hesitate because a move is a bet on your future paycheck.
Builders are reacting to that reality. To keep sales moving, major builders have leaned heavily on incentives, especially mortgage-rate buydowns. One prominent example: Lennar disclosed incentive spending around 14% of final sales price in late 2025. The result is margin pressure, which discourages new housing starts.
Tariffs, inflation, and a Fed that can’t declare victory
Inflation is no longer running away – but it’s also not safely back to target. One reason is tariffs. New York Fed analysis estimates that in 2025, the average tariff rate on U.S. imports rose from 2.6% to 13%, and nearly 90% of the economic burden fell on U.S. firms and consumers.
That leaves the Fed “stuck” in a familiar place: growth that’s still positive, a labor market that’s weaker than it looked a month ago (post-revision), and inflation that remains “somewhat elevated.” The Fed has repeatedly signaled it is balancing risks on both sides of its mandate – explicitly noting that downside risks to employment had risen even as inflation remained elevated.
The week ahead, then, is less about any one data point and more about whether the U.S. economy is settling into a stable, low-hiring equilibrium… or sliding into something more fragile.
