Home Insights Macro views January jobs reports: Weak headline jobs growth masks underlying resilience

January jobs reports: Weak headline jobs growth masks underlying resilience

Market response

February 7, 2025 | 2 min read
Christian Floro, CFA, CMT
Market Strategist
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The January jobs report showed a 143,000 worker increase in payrolls, which, while below expectations, masks the underlying resilience of the U.S. labor market. Not only was last month’s already strong figure revised even higher, but the unemployment rate declined and wages remained strong. Together with the potential for the Trump administration’s policies to have a significant impact on both the labor market and inflation picture, the Fed has little immediate reason to cut policy rates, likely taking a March rate cut off the table.

Non-farm payrolls
Thousands, January 2022–present

Non-farm payrolls in Thousands, from January 2022–present in bar chart form
Source: Associated Press, Principal Asset Management. Data as of November 13, 2024.

Report details

  • Total non-farm payrolls increased by 143,000 in January, below consensus expectations, which had called for 175,000. December’s already strong report was revised even higher to 307,000. The BLS noted that the wildfires in Southern California and severe winter weather impacting much of the country has no discernable effect on the report.
  • Overall job growth was dominated by a few industries, including healthcare and government, where employment grew 44,000 and 32,000, respectively. Employment in retail trade also showed a continued rebound, adding 34,000 jobs, despite having added little net jobs in 2024. While government employment has been a steady source of job gains over the past year, contributing over 20% of total average payroll gains in 2024, a reduction of government employees as signaled by the Trump administration could weigh on overall payroll growth in the months ahead.
  • Meanwhile, professional and business detracted from job gains, shedding 11,000 jobs, while employment in mining & logging also declined by 7,000. Despite seeing very strong employment gains over the previous two months, leisure & hospitality jobs dropped by 3,000 workers in January, with a total decrease of 16,000 jobs within restaurants.
  • The unemployment rate unexpectedly declined to 4.0%, helped largely by a continued decline in layoff activity. Hiring activity remains sluggish, however, with the duration of unemployment staying elevated at 10.4 weeks. The labor market remains in an uneasy equilibrium—low layoffs coupled with low hirings—suggesting that there remains risk that only a mild pick up in layoffs is needed to see the unemployment rate rise. The labor force participation rate ticked up to 62.6%, from 62.5% prior.
  • Average hourly earnings rose by 0.5% in the month, larger than expected, keeping the annual rate steady at 4.1%. The recent pace of earnings growth has remained particularly strong, with the three-month annualized rise in wages steadily accelerating in recent months and rising to 4.7% from 4.3% in December.
  • The January jobs report included an annual revision to overall payroll data, which showed job growth in 2024 to be 598,000 lower than initially reported, implying payroll gains averaged 166,000 a month last year, a slowdown from the initially reported 186,000. Annual adjustments were also made to incorporate updated population estimates that—while relatively large relative to past years and a significant boost to total labor supply—only marginally increased the unemployment rate and labor force participation rate.

Policy outlook

The weaker than expected January payrolls number underplays the underlying resilience of the U.S. labor market. Not only was last month’s already strong figure revised even higher, but the unemployment rate also continued to move lower as layoff activity remains low, while wages remain particularly strong—a bright spot for consumption. Against this backdrop, the Fed has little immediate reason to cut policy rates. More importantly, as the Trump administration’s policies have the potential to significantly impact both the labor market picture and the inflation outlook, there is every reason to keep rates on hold for now, suggesting that the Fed pause is likely to last through the March FOMC meeting.

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