U.S. Employment (January 2025)

Payrolls slow in January, but California wildfires and cold weather likely a factor 

• Non-farm payrolls rose 143k in January, slightly below the consensus forecast calling for a gain of 170k.  
  
  • This morning's report also included more comprehensive benchmark revisions, which are done annually to better align the establishment survey figures to observed employment counts reported in tax filing data. The revisions showed the level of employment as of March 2024 was lower by 589k.
  • The Bureau of Labor Statistics also revised its seasonal adjustment factors (dating back to 2020) as well as the birth/death factors used to scale payroll changes up or down depending on the estimated rate of firm formation. These revisions showed that payroll growth between April 2024 – December 2024 was revised slightly lower by a total of 21k jobs. However, revisions through the fourth quarter were notably higher (adding an additional 101k jobs to the previously reported figures), suggesting more hiring momentum heading into 2025. 
• Private payrolls rose 111k – notably lower than the 273k reported in December – with the largest gains seen in health care & social assistance (+66k) and retail trade (+34.3k). Government hiring rose 32k.
• In the household survey, new population controls were introduced last month (as is the case every January), to reflect new population estimates from the Census Bureau. Unlike the establishment survey, the historical household data is not revised, distorting the month-to-month changes for civilian employment, unemployment, and the labor force. However, the ratios in the survey (i.e., the unemployment and participation rates) remain largely unaffected.
  • Civilian population was revised higher by 2.9 million in January, as prior population estimates have significantly undercounted immigration flows in recent years.
  • The unemployment rate ticked lower by 0.1 percentage points to 4.0%, while the labor force participation rate edged up to 62.6%. 
• Average hourly earnings rose 0.5% month-on-month (m/m) in January – an acceleration from December's more modest gain of 0.3%. On a twelve-month basis, wage growth was up 4.1% (unchanged from the month prior), while the three-month annualized edged up to 4.5% (from 4.3% in December).

Key Implications

• There was a lot to digest in this report. But perhaps the biggest takeaway was that hiring momentum was even stronger than previously expected at the end of last year – averaging 204k jobs per-month in the fourth quarter. And even though the January figures showed some deceleration in payrolls, it was likely due to wildfires in California and cold weather across much of the U.S. – suggesting we could see some bounce back in February. 
• While it was previously thought that that labor market had fallen into a sweet spot, this morning's release suggests things are still running a bit hotter than previously expected. The unemployment rate dipped to an eight-month low, while wage growth has shown more staying power. With inflation progress having stalled in recent months and heightened uncertainties on how far the new administration will go on tariffs, the Fed is likely to remain more cautious on rate cuts and hold the policy rate steady until sometime this summer.

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