The unemployment rate fell to 6.5% in January, better than expectations for the print to stay flat M/M at 6.8%…

… despite a net 25K drop in employment, with a second straight month of full-time adds (up 45K) more than offset by part-time losses (down 70K)…

… anchored by manufacturing and educational services at the industry level.

So the real driver wasn’t labour market improvement, but weaker workforce engagement - with the participation rate falling to 65%.

That drawdown should be transitory, with only a small increase in discouraged job seekers - but if vacancies don’t improve…

… unemployment duration could keep grinding higher, encouraging something more structural in nature.