The U.S. labor market showed signs of cooling in January but a jump in wages made the analysis slightly more complicated, according to the Bureau of Labor Statistics.
- Total nonfarm payroll employment increased by 143,000, a significant slowdown from December’s revised gain of 307,000 jobs. The latest figures came in below economists’ expectations of 170,000 new jobs.
- Despite the slower pace of hiring, the unemployment rate edged lower to 4.0%, down from 4.1% in December, marking its lowest level since May 2024.
Breaking It Down. Healthcare continued to be the strongest-performing industry, adding 44,000 jobs in January. Retail followed with 34,000 new positions, while government employment rose by 32,000.
- The only industry to post job losses was mining, quarrying, and oil and gas extraction, which shed 8,000 jobs.
Revised Upward. The Bureau of Labor Statistics revised November’s employment total upward by 49,000 to 261,000, and December’s gain was revised higher by 51,000 to 307,000 adding a total of 100,000 jobs that were initially undercounted.
Wage Growth. One of the biggest surprises in the January jobs report was wage growth. Average hourly earnings increased by 0.5% during the month, the highest monthly increase since August 2024.
- Year-over-year, wage growth remained steady at 4.1%, despite economists predicting a decline to 3.8%.
The Fed. The Federal Reserve, which is balancing the risks of inflation and employment stability, held interest rates steady in January amid signs of economic resilience. The strong wage growth may complicate the Fed’s decision-making process, as it could contribute to inflationary pressures, making rate cuts less likely in the near future.
- NOTE: Some economists believe the U.S. is nearing full employment, estimating that job growth of 100,000 to 150,000 per month is necessary to maintain current unemployment levels.
Looking Ahead. Policy changes could introduce new risks to job growth. Proposed tariffs and immigration restrictions may impact labor supply and business costs. The administration’s recently implemented 10% tariff on Chinese imports, along with planned 25% tariffs on Mexican and Canadian goods, could push inflation higher. Additionally, immigration policies restricting the flow of new workers into the U.S. could tighten labor markets further, potentially boosting wages but slowing overall employment growth.
Bottom Line. While the pace of job growth is cooling, the labor market remains resilient, with unemployment at its lowest level in eight months and wage growth exceeding expectations. However, economic risks loom, and the Fed will be closely monitoring inflation pressures as it considers future interest rate decisions.
