Can a labor market be hot and cool at the same time? That’s the picture painted by the latest federal hiring figures, which show a step down in job creation last month — as well as a drop in joblessness.
Employers added 143,000 jobs in January, slightly fewer than expected, the Labor Department reported on Friday. But with large upward revisions to the prior two months and a decline in the unemployment rate to 4 percent, American workers still appear to be in good shape.
“We have robust fundamentals, and relatively moderate hiring, but it’s very judicious,” said Gregory Daco, the chief U.S. economist with the accounting firm EY-Parthenon. “The unemployment rate is historically low, but frozen in the sense that you’re not seeing much churn — businesses are being cautious as to how they manage their work force.”
Other data bear out that impression: The rate of job openings has sunk below prepandemic levels, as has the share of people quitting. Few people are being laid off, but for those out of work, it’s increasingly difficult to get a job.
For those still employed, pay increases remain respectable. Average hourly earnings rose 4.1 percent over the year — more than economists had forecast, and well above the rate of inflation. Impressive productivity growth over the past year means that such wage increases can be sustained without pushing up prices.
The report, based on midmonth surveys, is a snapshot of the labor market on the eve of the inauguration of President Trump. In combination with his early moves to impose tariffs with threats of more to come — which could push up inflation — the sturdy wage and job gains make it unlikely that the Federal Reserve will resume easing interest rates for at least the next few months, or longer.
The central bank’s first cut, back in September, now appears to have led to a surge in hiring that officials may not feel they need to repeat if it means adding to price pressures.
“We don’t expect the Fed to cut rates this year anymore,” said Bradley Saunders, a North America economist at Capital Economics, who had earlier expected two rate cuts in 2025. “Since the tariff news and how hawkish Trump has shown himself to be, we’ve decided that’s no longer the case.”
Reinforcing that view, the University of Michigan’s consumer sentiment index fell for the second month in a row, with expectations for future inflation skyrocketing. Although surveys of business sentiment brightened after the election, that hasn’t historically translated into hiring, and import duties may put a damper on many companies’ expansion plans.
The jobs report also incorporated larger-than-usual revisions to data released over the past two years using more complete estimates of population growth and unemployment insurance claims. Overall, the economy added 655,000 fewer jobs in 2023 and 2024 than previously thought, although the 4.6 million positions added over that period are strong by any measure.
The main sectors powering growth, as has often been the case in recent months, were health care, social assistance, retail work and government. Most other sectors were flat, and manufacturing has now shed about 140,000 jobs since the industry’s recent high in early 2023.
Construction, which had contributed 16,000 jobs per month on average in 2024, barely grew. Jobs in professional and business services, as well as the information category that includes many technology firms, have stabilized in recent months after subsiding from their post-lockdown booms.
If job growth recedes, it may match up with a labor force that’s already adding fewer people. The surge in immigration over the past three years contributed millions of workers, but new arrivals have been slowing since the Biden administration clamped down on asylum claims last summer. Since taking office, Mr. Trump has been working to sever the flow almost entirely, and to expel many of those who have become eligible to work.
That’s why Stephanie Roth, chief economist at the investment analysis firm Wolfe Research, doesn’t expect the unemployment rate to rise further this year.
“The economy should be largely fine, labor demand should be decent if that’s the case, and 3.5 million people are going to lose their visa statuses over the next two years,” Ms. Roth said. “It’s going to tighten labor supply.”
The likely impact on native-born workers remains unclear, however, given that recent immigrants tend to perform complementary roles that can expand the overall labor pie. And the labor force participation rate for both immigrants and native-born people in their prime working years — ages 25 to 54 — has remained near the postpandemic peak it reached last summer, which was the highest rate since 2000.
One place where the lack of immigrants may eventually be felt is Los Angeles, which will need people to help clear debris and rebuild from January’s wildfires. For now, the Labor Department said, neither that disaster nor widespread snowstorms had a “discernible effect” on its surveys.
A January decline in the private sector average workweek nationwide, to a low point not seen since March 2020, could be evidence that the city’s workers weren’t able to put in full-time hours in the face of dense smoke and blocked highways. But the impact may also have been muted by the fact that the fires didn’t hit the region’s major employment centers, and its entertainment professions have already been in a bit of a slump.
Nicole Chen is a member of one of them — animation. She’s a storyboard artist, working in stints of three months to a year for studios that produce cartoon shows. Fewer of those projects have been financed in recent years, and the demand for people like her has been eroded by outsourcing and artificial intelligence. Now in a long stretch without a gig, she often goes out to lunch with friends in similar situations.
“There are just tons of talented people who are out of work because there’s no jobs,” said Ms. Chen, 33. “I do see people saying, ‘Am I not good enough?’ And I’m like: ‘But everybody you know is unemployed. It’s not you.’”
And being out of work has been getting more arduous. Although it dropped in January, the average duration of employment had jumped sharply in the second half of 2024.
“That’s going to chip away at confidence, and it snowballs,” said Stephen Gallagher, chief U.S. economist for the French bank Société Générale. “Consumers slow down, and businesses say, ‘I don’t need as many workers as I thought.’ I think that’s a danger going forward.”
For now, businesses are hiring steadily but carefully. That includes Johnathon Bush, who runs a wholesale bakery in Chicago called Not Just Cookies. He has taken on a couple of large clients recently and moved into a bigger space to crank out their orders, so he needs to expand beyond his five core employees. But his ingredient costs remain unpredictable — egg prices can wipe out a baker’s profit margins — and rising wages mean that the stakes of each hire are greater.
“I’m going to start with two because I want to make sure that everything’s good with the new business,” Mr. Bush said. “I’ve learned to hire very, very slow to improve the chances of success with a person. You just have to be very careful because it is a lot more costly to bring on people.”