US Hiring Slowed In January, But The Labor Market Trend May Be Strengthening
The relatively upbeat outlook for the labor market suggests that recession risk will stay low for the foreseeable future and the Federal Reserve will keep interest rates steady.
By James Picerno | The Milwaukee Company | jpicerno@themilwaukeecompany.com
US non-farm payrolls in January posted softer-than-expected growth, but the broader profile of the labor market suggests a stronger profile.
Hiring rose 143,000 last month, the Labor Dept. reports. That’s sharply below December’s upwardly revised blow-out increase of 307,000. But the weaker January increase masks what may be a firming trend in hiring.
Using a 3-month average of payrolls to reduce the short-term noise suggests the hiring trend appears to be picking up. Note, too, that the 6-month trend turned above the 1-year change in January for the first time since May.
Another sign that the labor market is stabilizing, if not strengthening: the unemployment rate dropped to 4.0% in January, the lowest since May.
Jobless claims data also seems to support the view that the labor market remains robust. This leading indicator for payrolls continues to post a declining trend for new filings of unemployment benefits. After an increase in new filings in late-2024, claims have started sliding again, which implies that labor-market strength is reviving.
Today’s release also shows that average hourly earnings are holding steady at roughly 4% year-over-year. In addition to running above the inflation rate (2.9% for the consumer price index in December vs. the year-ago level), wage growth has rebounded since the summer, when it bottomed at 3.6% in July.
In sum, recent concerns about the labor market appear premature. Although the January increase in payrolls was softer than forecast, the California wildfires may have temporarily suppressed the gain.
Today’s report will likely be another factor that supports keeping interest rates unchanged at the next Federal Reserve policy meeting on March 19. To the extent that the central bank started cutting rates in late-2024 due to weakening labor market conditions, that factor no longer looks compelling in support of extending rate cuts. All the more so if “sticky” inflation persists in next week’s January update of the consumer price index (Wed., Feb. 12).
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