February 12 Closing: U.S. Stocks Close Slightly Lower as Non-Farm Payroll Data Reduces Probability of Fed Rate Cut

In the early morning of February 12, Eastern Time (UTC+8), U.S. stocks closed slightly lower on Wednesday. U.S. nonfarm payroll data for January far exceeded expectations, indicating that the economic fundamentals remain solid and reducing the likelihood of a Federal Reserve rate cut before mid-year.

The Dow Jones fell 66.74 points, or 0.13%, to close at 50,121.40 points; the Nasdaq dropped 36.01 points, or 0.16%, to 23,066.47 points; the S&P 500 slipped 0.36 points, or 0.01%, to 6,941.45 points.

The U.S. Bureau of Labor Statistics released the January nonfarm employment report on Wednesday morning. The release was delayed due to the partial federal government shutdown that ended on February 3.

The data showed that U.S. nonfarm payrolls increased by 130,000 in January, far surpassing expectations. As U.S. employers added 130,000 jobs in January—well above forecasts—U.S. stock index futures rose. The U.S. Department of Labor said the unemployment rate dropped to 4.3%.

A Dow Jones survey showed economists had forecast an average increase of 55,000 jobs last month.

Previously, economists expected the latest employment report would show almost no growth in January jobs. Dow Jones survey results indicated a consensus forecast of 55,000 new jobs, compared with 50,000 in December. Economists also expected the unemployment rate to land at 4.4%. In addition, traders are watching a series of revised data from the Bureau of Labor Statistics, which may provide further clues about the U.S. labor market and economic conditions.

The nonfarm payroll report eased the negative market sentiment triggered by Tuesday's weaker-than-expected consumer data. Data released Tuesday showed December consumer spending was flat month-on-month, below the 0.4% monthly increase expected by economists surveyed by Dow Jones.

January's unexpectedly strong nonfarm payroll data in the U.S. reduced the likelihood that the Federal Reserve would need to cut rates again before mid-year, as the most worrying trends in the labor market appear to be receding.

Concerns about rising unemployment had prompted the Fed to cut rates three times in a row before the end of 2025, only pausing this January. However, the data released Wednesday may have alleviated this situation. January's increase in U.S. nonfarm payrolls was the highest in more than a year, and the unemployment rate also posted an unexpected decline.

At last month's policy meeting, Fed officials already cited signs of stabilization as one of the reasons for holding steady. As soon as Wednesday's Bureau of Labor Statistics report was released, traders immediately lowered the probability of a rate cut in June to below 50%. Before the latest data, that had been considered the most likely timing for a return to policy easing.

"This undoubtedly makes the argument for rate cuts much more complicated," said Tim Mahedy, a former senior adviser at the Federal Reserve Bank of San Francisco. "The January data is really strong."

Economists caution that the optimistic January data may still be revised downward, and hiring remains concentrated in a few sectors, especially healthcare. After last year's data revisions, the average monthly increase in jobs was just 15,000, far lower than the initially reported 49,000.

Stephen Stanley, Chief U.S. Economist at Santander US Capital Markets LLC., believes January’s rebound will calm market fears of a sustained rise in unemployment, especially amid worries about the impact of artificial intelligence and companies putting hiring plans on hold.

"The strength of the January data should certainly put a nail in the coffin of claims that the labor market is about to collapse, which is something we often hear from some of the more dovish Fed officials," Stanley said.

Accompanying this surprising data was President Trump's repeated call for rate cuts. After the nonfarm report was released that day, Trump immediately posted on social media, praising the "excellent" jobs data. He also stated that America should enjoy the lowest interest rates in the world.

Trump had earlier announced the nomination of Kevin Warsh to succeed Jerome Powell, whose term as Chair ends in May, to lead the Federal Reserve. Warsh supports Trump’s view that rates could be further reduced.

Federal Reserve watchers warn that it's too early to predict economic conditions before June. If Warsh is confirmed before then, his first Federal Open Market Committee meeting would be at that time.

Stephanie Roth, Chief Economist at Wolfe Research, pointed out that key indicators currently show both the labor market and the overall economy are strengthening, which does not support Warsh’s case for lowering rates.

"That just makes his job a bit harder," she said.

Jeff Kilburg, CEO of KKM Financial, said: "Traders had previously been very anxious about data missing expectations by a wide margin. Better-than-expected data allowed bulls to resume their upward momentum, continuing the chase for new S&P 500 record highs."

U.S. stocks closed mixed on Tuesday. The Dow hit another record high. Ongoing concerns about the impact of artificial intelligence on the financial sector continued to weigh on the S&P 500, which fell 0.3%. After technology platform Altruist launched a new AI tax planning tool, shares of several financial services companies declined. The Nasdaq Composite Index fell about 0.6%.

In addition to the employment report, other economic data that may impact markets will be released this week. The Consumer Price Index, a key inflation gauge, is expected to be released on Friday.

Editor: Zhang Jun SF065