The Labor Department has released its first jobs report of the year, covering January 2025.
It shows that payrolls grew by 143,000 — somewhat lower than economists’ expectations of 175,000. On the other hand, payroll growth for the end of 2024 was revised up quite a bit. Over the past 3 months, payroll growth has averaged a very strong 234,000.
Payroll growth was concentrated in a handful of sectors: healthcare (44,000), retail trade (34,000), social assistance (22,000) and government (32,000). Hourly wage growth was quite strong, but averages 4.2% over the past two months — which is very consistent with its growth over 2024.
The unemployment rate dipped slightly to 4.0%, while labor force participation also grew slightly (to 62.6%). The unemployment rate has declined from 4.2% a few months ago, and the employment rate out of the population has risen from 59.8 to 60.1%, which are encouraging signs that the job market still remains quite strong.
The dip in payroll growth last month suggests that the labor market could be slowing a bit, since the job vacancy rate for December (reported earlier this week) dipped to 4.5% – it’s lowest level since the pandemic. But, given the extremely strong hiring rates at the end of 2024, it would be premature to make this claim right now based only on January data.
The Labor Department also reported that nonfarm productivity rose 1.2% for the fourth quarter of 2024, and 1.6% over the past year. These numbers are somewhat lower than what we had observed in 2023 but consistent with productivity growth over the past decade. Combined with our wage growth of just over 4%, it suggests labor costs are rising at about 2.5%, which is not far above the Fed’s target rate for inflation.
One other bit of news appears in this report: The Labor Department revised down payroll growth for the past year (by about 600,000) and revised up its population growth numbers by 2.8 million. This mostly eliminates a major gap that had appeared between the BLS payroll and labor force growth numbers in 2023-24, which should move in tandem over time. Immigration accounts for much of the higher population growth, and has helped reduce inflationary pressures in the job market.
Overall, the job market seems to have cooled just a bit in January but mostly remains solid. The biggest source of uncertainty for the market outlook in 2025 remains the Trump administration, whose plans to deport large numbers of immigrants and place tariffs on our trading partners (who will retaliate against our export sectors) could disrupt economic activity and cause higher inflation. The Federal Reserve is wise to wait on further cuts in interest rates as it monitors the economy in 2025, but the current data suggest the job market remains strong and steady.