U.S. job growth slowed more than expected in January, likely restrained by wildfires in California and cold weather across much of the country, but a 4.0% unemployment rate probably gives the Federal Reserve cover to hold off cutting interest rates at least until June.
Nonfarm payrolls increased by 143,000 jobs last month after rising by an upwardly revised 307,000 in December, the Labor Department's Bureau of Labor Statistics said in its closely watched employment report on Friday. The moderation in job gains was also payback after December's robust performance.
Economists had expected the establishment survey to show 170,000 jobs added, with estimates ranging from 60,000 to 250,000. The employment report was distorted by annual benchmark revisions, new population weights and updates to the seasonal adjustment factors, the model the government uses to strip out seasonal fluctuations from the data.
Traders of short-term interest-rate futures continue to bet the Federal Reserve will next cut its policy rate in June after the government report showed the U.S. unemployment rate was 4% last month.
Traders also continue to see a second rate cut by the end of 2025 as more likely than not.
The final employment report under former President Joe Biden's administration showed slower job growth from April 2023 through March 2024 than had been reported.
Cutting through the noise, the healthy labor market narrative remained intact through January. The unemployment rate was at 4.0%. It is not directly comparable to December's 4.1% rate because of the new population controls, which only apply to January and upcoming reports, meaning a break in the series.
Average hourly earnings rose 0.5% after gaining 0.3% in December. Wages increased 4.1% in the 12 months through January after advancing 4.1% in December.
Labor market resilience is the driving force behind the economic expansion and has given the U.S. central bank room to pause rate cuts while policymakers assess the impact of the fiscal, trade and immigration policies of President Donald Trump's administration, viewed by economists as inflationary.
The Fed left its benchmark overnight interest rate unchanged in the 4.25%-4.50% range last month, having reduced it by 100 basis points since September, when it embarked on its policy easing cycle. The policy rate was hiked by 5.25 percentage points in 2022 and 2023 to tame inflation.
Financial markets are expecting a rate cut in June.
There are growing concerns that mass deportations and tariffs could hamper the labor market this year, by reducing labor supply and making businesses reluctant to add to their costs by expanding headcount.
Moves by the Trump administration to slash federal government jobs and spending were also seen curbing employment growth. Government employment, including state and local government, has been a major contributor to job growth.
There are already widespread reports of layoffs at organizations dependent on federal government funding.