Washington: U.S. job growth likely slowed in January, influenced by adverse weather conditions and California wildfires, though not enough to prompt the Federal Reserve to resume interest rate cuts before mid-year.
The Labor Department’s employment report, set for release on Friday, will be affected by annual benchmark revisions, updated population weights, and seasonal adjustment recalibrations. Despite these distortions, economists anticipate that the labor market’s overall strength will remain evident, with the unemployment rate expected to hold at 4.1% and wages continuing to rise steadily.
Labor market resilience has been a key driver of economic expansion, giving the U.S. central bank room to pause rate cuts while assessing the impact of fiscal, trade, and immigration policies under former President Donald Trump’s administration, which economists largely view as inflationary.
“There will be some noise, but the general message is going to be a continuation of a relatively healthy labor market,” said Dan North, senior economist at Allianz Trade Americas.
A Reuters poll of economists suggests that nonfarm payrolls increased by 170,000 jobs in January, following a robust gain of 256,000 in December. However, external factors likely dampened growth. Wildfires in Los Angeles are estimated to have cost up to 25,000 jobs, primarily in accommodation, food services, and housekeeping. Additionally, frigid temperatures and snowstorms across large parts of the U.S. may have disrupted construction and leisure-related employment, eliminating another 15,000 jobs.
Downward Revisions Expected
The final employment report under former President Joe Biden’s administration is expected to revise job growth downward for the period from April 2023 to March 2024. An earlier government estimate in August indicated a downward revision of 818,000 jobs, though economists now expect the reduction to range between 675,000 and 700,000 jobs.
The payroll data from April to December 2023 is also expected to be adjusted to reflect new seasonal trends. These changes will impact not only job figures but also average hourly earnings and the workweek. January’s average hourly earnings are forecast to rise by 0.3%, in line with December’s gain, bringing annual wage growth down slightly to 3.8% from 3.9% in December.
“We expect the annual revision will reduce the recent trend pace of growth by 35,000 and by about 70,000 on average over the April 2023-March 2024 period,” said Andrew Husby, senior U.S. economist at BNP Paribas Securities. “A larger effect on recent momentum is possible, but we are skeptical given robust economic growth.”
With job growth increasingly concentrated in low-wage sectors such as leisure, hospitality, healthcare, and social assistance, some economists argue that a white-collar recession is unfolding, even as overall employment remains strong. They suggest the Federal Reserve should consider rate cuts.
“Jobs in the middle and higher end of the income spectrum, many of them are gone,” said Sung Won Sohn, Finance and Economics professor at Loyola Marymount University. “Maybe the economy is not as strong as one would think, simply based on the monthly payroll numbers. I hope the Fed takes that into consideration.”
Fed Policy and Labor Market Concerns
The Federal Reserve kept its benchmark interest rate steady in the 4.25%-4.50% range last month, having cut rates by 100 basis points since September 2024 as part of its policy easing cycle. The Fed had previously raised rates by 5.25 percentage points in 2022 and 2023 to curb inflation. Financial markets now anticipate a rate cut in June.
Concerns are mounting over how potential mass deportations and tariffs could affect the labor market by shrinking the labor supply and making businesses hesitant to expand their workforce. Additionally, former President Trump’s proposed federal job cuts could further constrain employment growth, as government hiring—especially at the state and local levels—has been a significant driver of job gains.
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The January employment report will incorporate new population controls for the household survey, which determines the unemployment rate. These adjustments are expected to expand the labor force and increase household employment, helping to close the gap between household and payroll data. Economists believe the household survey has not fully accounted for recent immigration trends, contributing to discrepancies in labor statistics.
While the unemployment rate is typically unaffected by these population adjustments, January’s figure will not be directly comparable to December’s due to methodological changes.
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“The underlying pace of job growth is currently around 150,000 and, if anything, should moderate further in early 2025, reflecting both easing demand for workers as the economy slows a bit and a reduction in labor supply growth due to tighter immigration policies,” said Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets.
“Businesses would take a conservative approach to investing and hiring in early 2025 in light of the immense policy-related uncertainty that firms face in the short run.”
