U.S. Job Growth Slows in January

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. job growth slowed more than expected in January after robust gains in the prior two months, but a 4.0% unemployment rate likely gives the Federal Reserve room to hold off on interest rate cuts at least until June.

The Labor Department’s closely watched employment report on Friday also showed strong wage growth last month, with average hourly earnings surging by the most in five months, keeping consumer spending supported. Labor market resilience is a key driver behind ongoing economic expansion.

Concerns persist that an immigration crackdown and broad tariffs on imports pursued by President Donald Trump could severely curtail labor market and economic growth in the upcoming months. Trump has suspended a 25% tariff on goods from Canada and Mexico until next month, but lingering uncertainty may discourage business expansion, impacting employment growth.

Fears of higher prices due to tariffs sent consumers’ 12-month inflation expectations to a one-year high in February, a survey from the University of Michigan showed, worrying U.S. central bank officials.
“There is still much to like about the U.S. labor market’s resilience and sustainability,” said Scott Anderson, chief U.S. economist at BMO Capital Markets. “This report cements the view that the Fed could be on hold for a considerable time before cutting rates again.”

Nonfarm payrolls increased by 143,000 jobs last month after a revised 307,000 in December, the Labor Department’s Bureau of Labor Statistics indicated. The moderation in job gains follows a surge of 261,000 in November. Economists polled by Reuters had expected an addition of 170,000 jobs.

The BLS reported wildfires in Southern California and frigid temperatures had no discernible effect on payrolls. However, the household survey noted 573,000 people didn’t report for work due to weather conditions, the highest for any January since 2011.

Employment at restaurants and bars fell by 15,700 positions, indicating fire and cold weather impacted job growth significantly. The workweek also shortened slightly to 34.1 hours from 34.2 hours in December.

The healthcare sector led employment gains, adding 44,000 jobs across hospitals and home healthcare services. Retail saw a rise of 34,000 jobs, mostly in general merchandise stores. Social assistance payrolls grew by 22,000 jobs, while government employment increased by 32,000, with 9,000 in the federal government. However, momentum in government jobs may decline amid plans to cut federal jobs.

Employment remained stable in several sectors such as construction, manufacturing, and financial services, with only 55.0% of industries reporting growth, down from 57.2% in December. Economists noted that most new jobs created were in lower-wage sectors.

FED ON HOLD

Scott Anderson commented, “We’d prefer if tech, construction, business services, and manufacturing were driving job growth, but we can’t have everything.” Despite this, the labor market’s resilience provides the Fed with space to pause rate cuts while evaluating the effects of the Trump administration’s policies.

U.S. Treasury yields rose and stocks fell as the dollar gained against a basket of currencies. The Fed maintained its benchmark overnight interest rate in the 4.25%-4.50% range last month, having reduced it by 100 basis points since September. Market expectations point towards a rate cut in June.

The employment report included annual benchmark revisions to payrolls and updates to seasonal adjustments. The final employment report under former President Joe Biden indicates 598,000 fewer jobs were created than previously estimated. Nonetheless, the labor market remains healthy, with average hourly earnings rising 0.5% in January, while wages grew 4.1% over the past year.

The household survey recorded an unemployment rate of 4.0%, the lowest since May, though it cannot be directly compared to December’s 4.1% due to new population controls, which affected interpretations. The civilian population increased by 2.9 million, with the labor force rising by 2.1 million. The adjustments narrowed the gap between household and payroll surveys.

Christopher Rupkey, chief economist at FWDBONDS, stated, “The ball is in Washington’s court to make important decisions on taxes and immigration that can significantly influence economic growth.”