January employment report -- strong overall despite slower nonfarm payroll gains for the month.
Nonfarm payrolls rose by a smaller than expected 143,000 for January (market expectations were for 170,000-180,000). But large upward revisions to the prior two months more than offset this somewhat slower monthly increase. Both November and December were revised higher by about 50,000. The three-month average increase, which helps to smooth out short-term volatility, moved higher to 237,000 in January – a solid gain. Average hourly earnings jumped by 0.5 percent for the month, above the expected 0.3 percent, with the 12-month trend rate at 4.1 percent.
Benchmark declines in 2024 nonfarm employment data were somewhat less than expected, but it resulted in a total of four months in 2024 with gains under 100,000 as opposed to only two months from the previously reported data. Still, the strong upward revisions over the past two months of the year (with December now showing the largest gains for all of 2024) showed that the job market ended the year with significant momentum.
Benchmark revisions to the household survey showed that the labor force was about 2.1 million larger than originally estimated, with the number employed climbing by 2.0 million. As a result, the number of unemployed workers was revised higher by 105,000 for the year. The U-3 unemployment rate slipped to 4.0 percent for January, a continuation of its recent downward trend – but still up from 3.7 percent in January 2023.
Taken together (the most recent monthly data, annual benchmark revisions, and the usual updates for the prior two months), the job market remains solid. Will the slower payroll gain in January be the new normal, or will continued upward revisions reduce even this small amount of weakness? We expect slower gains to come over the course of 2025 than occurred last year, but not significantly so (although slower immigration could have a downward impact on job gains).
Today’s employment report should help to keep the Fed on the sidelines at the March FOMC meeting – but there is a lot of data (especially inflation and another job report) before that meeting.
David W. Berson, Ph.D.
Chief US Economist
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