January employment data confirms strong hiring, real wage growth, and solid consumption. Analysis of CPI base effects and implications for Federal Reserve rate policy.
Employment Report Confirms System Strength
The latest employment report confirms our forecasts. The data is clearly positive and
indicates that the economic system continues to expand.
- Recovery in Continuing Claims: -70,000
- New hiring momentum into late January
- Higher compensation for medium- and high-value-added positions
It is important to note that annual bonuses are typically paid in late January and
are included in monthly wage data. This seasonal effect must be considered when
evaluating the strength of wage growth.
The Monetary Perspective: Three Supporting Elements
- Strong month-over-month wage increase (+0.70%), largely driven by
annual bonus payments in January 2026. - Employment growth, particularly in non-supervisory roles.
- CPI base effect (January comparison effect):
January 2026 CPI rose +0.25% versus December 2025, while January 2025 had risen
+0.65% versus December 2024. This lower comparison base mechanically reduces the
year-over-year CPI rate.
As a result, CPI year-over-year declines from 2.68% in December 2025 to approximately
2.26–2.34% in January 2026. The drop is largely mathematical — a base effect — rather
than a structural collapse in prices.
Under these conditions, consumption remains solidly supported.
Real Weekly Earnings (CPI-Adjusted)
December 2025 → January 2026 (Y/Y Real Terms)
Single Employee Category
- All employees: +0.75% → +2.06%
- Non-supervisors: +1.14% → +2.00%
- Supervisors: +0.20% → +2.31% (new high-value roles)
Total Category
- All employees: +1.03% → +2.53%
- Non-supervisors: +1.57% → +2.78%
- Supervisors: -0.17% → +1.97%
The rise in hiring among non-supervisory employees reinforces the view that
the labor market remains active and broad-based.
What About February?
The February average weekly earnings data will not include the annual bonus component.
That release will provide a cleaner read on underlying wage momentum.
However, even adjusting for bonuses, the overall employment structure remains strong.
Implications for Consumption and Mortgage Capacity
The system maintains a high level of monetary availability. Real wage growth,
employment expansion, and moderating CPI all support:
- Continued consumption
- Preference for medium- to lower-priced goods and securities
- Ability to service mortgage obligations
Implications for the Federal Reserve
For the Federal Reserve, the January employment report strengthens the case
for delaying the next rate cut. Strong labor conditions combined with still-positive
real wage growth reduce the urgency for monetary easing.
That said, rate decisions do not depend solely on CPI year-over-year or
employment-related monetary effects. Broader financial conditions, credit markets,
and global dynamics also matter.
The market remains neutral, but today’s data carries inherent value.
Be positive.
Manager vs. Bureaucrat: A Policy Reflection
The Manager
A manager actively develops a situation to his advantage. In the case of the Fed,
this means managing growth while stimulating consumption without destabilizing inflation.
The Bureaucrat
A bureaucrat administers according to rules written by others, reacting rather than shaping.
Manager vs. Political Proclamations
Leadership requires operational plans, not just declarations.
Example 1 – Optimizing the Deficit
Redirecting spending from low-productivity foreign aid toward domestic defense
development — a high-value-added sector — would have a stronger multiplier effect on GDP.
Example 2 – Stimulating Domestic Consumption
Reducing VAT on domestically produced goods and services while raising it equivalently
on imports could stimulate internal production and consumption at neutral fiscal cost.