In January 2025, the U.S. economy added 143,000 jobs, marking a slowdown from the revised December figure of 256,000 jobs. Despite falling short of the anticipated 169,000 positions, this growth contributed to a slight decrease in the unemployment rate, which edged down to 4% from December’s 4.1%.
Sectoral Performance
The job gains in January were distributed across various sectors. Healthcare and social assistance led the growth, adding 100,400 positions. Professional and business services followed with 74,000 new jobs, and retail trade contributed 45,200 positions. The leisure and hospitality sector, which has been recovering steadily, added 11,000 jobs, marking its 36th consecutive month of growth. As of January, this sector is just 0.4% (approximately 75,000 jobs) below its pre-pandemic employment levels of February 2020.
Revisions and Historical Context
Revised data for November and December 2024 showed an upward adjustment of 100,000 jobs, indicating stronger performance in those months than initially reported. However, annual revisions revealed that the labor market in 2024 was less dynamic than previously thought, with an average of 166,000 jobs added per month, down from the initially estimated 186,000.
Wage Growth and Inflation
Average hourly earnings increased by 0.5% in January, influenced in part by minimum wage hikes in 21 states. Over the past year, wages have risen by 3.9%. While this wage growth benefits workers, it also poses challenges for the Federal Reserve’s efforts to manage inflation. The central bank has been cautious with interest rate adjustments, having reduced rates by 100 basis points in recent months, and is now signaling a more measured approach in 2025.
Federal Reserve’s Stance
The Federal Reserve maintained steady interest rates at 4.25%-4.5% after successfully reducing inflation from a peak of 9.1% in 2022 to just above 2.5%. The central bank is now awaiting the effects of the new administration’s policies under President Donald Trump, who began his second term with promises to lower inflation and create jobs. However, his administration has also imposed new tariffs on imports from China, Canada, and Mexico, which could potentially increase business costs and affect the labor market.
Impact of Immigration Policies
Economists have noted that during President Joe Biden’s administration, a surge of immigrant workers significantly boosted the U.S. labor market, accounting for as much as two-thirds of net job gains in the past year. With the new administration’s policies aiming to reduce immigration, there is concern that the decreased supply of immigrant workers could slow economic expansion, exacerbate staffing shortages, and increase wage pressures. This shift could complicate the Federal Reserve’s efforts to manage inflation and interest rates.
Market Reactions
The stock market responded to the January jobs report with intensified selling. The Nasdaq composite and the Russell 2000 small-cap index both fell by 1.1%, while the Dow Jones Industrial Average and the S&P 500 declined by 0.6% and 0.7%, respectively. The University of Michigan consumer sentiment survey reported a decline in consumer sentiment and raised inflation expectations, adding to the market’s weakness. The 10-year Treasury yield rose to 4.50%, up six basis points since the jobs data release.
Conclusion
The addition of 143,000 jobs in January reflects a cooling labor market compared to previous months. While the unemployment rate has decreased slightly, the slower job growth, coupled with wage increases and potential policy shifts, presents a complex landscape for the U.S. economy. The Federal Reserve and policymakers will need to navigate these challenges carefully to maintain economic stability and growth.