Washington, Feb 7 – The U.S. labor market lost momentum in January, with nonfarm payrolls increasing by 143,000 jobs, marking a sharp slowdown from the robust gains of the previous months. Despite this, the unemployment rate dipped to 4.0%, its lowest level since May, reinforcing expectations that the Federal Reserve will delay interest rate cuts until at least June.
The Labor Department’s report, released Friday, also pointed to stronger-than-expected wage growth, with average hourly earnings rising 0.5% last month—the biggest jump in five months. This uptick in wages is likely to keep consumer spending buoyant, supporting overall economic expansion.
Economic Concerns and Policy Uncertainty
Analysts warn that the ongoing immigration crackdown and the Trump administration’s push for broad tariffs on imported goods could put further strain on both the labor market and the broader economy in the months ahead. While President Trump has temporarily suspended a 25% tariff on Canadian and Mexican goods, the uncertainty surrounding trade policy could dampen business investment and slow hiring.
Meanwhile, inflation concerns are rising. A University of Michigan survey showed that consumer inflation expectations surged to their highest level in over a year, a worrying sign for Federal Reserve officials as they weigh future policy decisions.
Key Sectors and Employment Trends
Healthcare remained a strong driver of job creation, adding 44,000 positions across hospitals, nursing facilities, and home healthcare services. Retail employment also saw an uptick, with 34,000 jobs added, mainly in general merchandise stores.
However, employment in restaurants and bars dropped by 15,700 jobs, reflecting the impact of extreme weather events, including wildfires in Southern California and severe cold across parts of the country. The Bureau of Labor Statistics noted that 573,000 workers were unable to report for work due to weather conditions, the highest January figure since 2011.
Government hiring remained strong, contributing 32,000 jobs, but this momentum could slow as the new administration moves to cut federal positions. Employment in construction, manufacturing, financial services, and transportation sectors remained relatively unchanged.
Fed’s Stance on Interest Rates
Despite slowing job gains, the labor market’s resilience gives the Federal Reserve room to maintain its current policy stance. The central bank left its benchmark interest rate unchanged in the 4.25%-4.50% range last month, following a series of rate cuts that began in September. Market analysts now expect the Fed to hold off on additional cuts until at least June.
Final Jobs Report Under Biden Administration
The January jobs report also included a significant revision to employment data from the past year. The final tally showed that 598,000 fewer jobs were created between March 2023 and March 2024 than previously estimated. Despite this downward revision, wage growth remained strong, with a 4.1% year-on-year increase.
“The ball is in Washington’s court,” said Christopher Rupkey, chief economist at FWDBONDS. “They can either act decisively on issues like taxes and immigration to support economic growth, or they risk prolonging uncertainty that could slow the recovery.”
Source: Reuters
