January Jobs Report Is a Bullish Sign for Labor Market Despite Downward Revisions

The US economy added jobs at a slower pace than economists expected last month, and annual revisions to the government’s data showed hiring gains in 2024 were more muted than previously thought. But under the hood, analysts say January’s data still paints a picture of a healthy and resilient labor market. That’s giving market watchers more confidence that the Federal Reserve will hold interest rates steady for now.

The US economy added 143,000 jobs in January, according to the latest report from the Bureau of Labor Statistics. That figure was below the consensus call for 170,000 jobs, according to FactSet. Meanwhile, the unemployment rate dropped to 4.0% from 4.1%; economists expected it to remain at 4.1%.

“Today’s data sends a moderately bullish signal about the strength of the labor market,” says Preston Caldwell, senior US economist at Morningstar. “With the state of the labor market looking solid, the Fed has no urgency to cut in its next meeting.”

Annual Revisions Were Expected

Caldwell says the downward revisions to nonfarm payroll employment growth were widely expected and smaller than preliminary estimates suggested. “The employment level in March 2024 was reduced by 589,000 jobs, a smaller reduction than the 818,000 in the preliminary announcement last August,” he explains.

At the same time, Caldwell points out that recent data shows an acceleration in that measure: “Three-month growth in nonfarm employment stands at 1.8% annualized as of January 2025, up from a recent nadir of 0.6% in August 2024.” That’s the fastest rate of growth since June 2023.

January Jobs Report Key Stats

• Total nonfarm payrolls rose by 143,000 versus an upward-revised 307,000 in December.
• The unemployment rate ticked down to 4.0% from 4.1% in December.
• Average hourly wages rose by 0.5% to $35.87 after rising 0.25% in December.

Job growth in January was led by the healthcare, retail, and social assistance categories, according to the BLS. The economy lost jobs in the mining, quarrying, and oil and gas industries. Caldwell points out that hiring in healthcare and leisure has been especially strong over the past three months, growing at a 3.2% annualized pace.

Unemployment Rate Ticks Lower

Caldwell observes that the unemployment rate fell to 4.0% in January, and it has now averaged 4.1% over the past three months. That’s in line with the 4.1% average for the last three months ending in October 2024.

Friday’s jobs report also brought revisions to the household survey of employment, which is used to calculate the unemployment rate. The BLS said these revisions were large compared with previous years, in part because of a major upward revision to the size of the US population by the Census Bureau. “This revision was long overdue, as many analysts argued the census was underestimating immigration,” Caldwell explains.

Wage Growth Accelerates

Friday’s report showed that average hourly wages in the United States rose by 17 cents from November, or 0.5%, to $35.87. Analysts watch this metric closely for any evidence that rising wages are adding to inflationary pressures on the economy.

Caldwell doesn’t believe the January jump in wages is cause for concern. “Other wage growth measures like the Employment Cost Index continue to trend down, so this is nothing alarming,” he says. “Wage growth is not far from the 3.5% pace consistent with the Fed’s 2.0% inflation target.”

When Will the Fed Cut Rates Again?

Analysts characterized Friday’s jobs report as more evidence that the Fed will keep rate cuts on hold for now. A healthy labor market means central bankers have more leeway to keep interest rates higher while inflation remains sticky and Washington policy remains uncertain. While falling inflation could still tip the scales toward cutting, Caldwell says, “today’s news makes a cut less likely.”

Bond futures traders now see a roughly 6.5% chance that the central bank will cut rates at its next meeting in March, according to the CME FedWatch tool. That’s down from a 16% chance yesterday and 36% a month ago.