U.S. Job Growth Likely Slowed in January Amid Wildfires, Cold Weather
The U.S. economy likely experienced a slowdown in job growth in January, according to experts. This slowdown is partially attributed to disruptions caused by wildfires in California and severe weather conditions in various parts of the country.
Annual benchmark revisions, population weight adjustments, and updates to seasonal factors are anticipated to impact the Labor Department's closely monitored employment report released on Friday. Despite these revisions, economists generally anticipate the underlying strength of the labor market to remain intact.
The unemployment rate is projected to hold steady at 4.1%, supported by historically low layoffs and steady wage growth. The resilience of the labor market continues to drive economic expansion and has provided the Federal Reserve (Fed) space to pause interest rate cuts while assessing the implications of the Trump administration's fiscal, trade, and immigration policies.
"The overall message will convey the continuation of a comparatively healthy labor market," stated Dan North, senior economist at Allianz Trade Americas. "There's no reason to disrupt that narrative."
A Reuters poll of economists predicts that nonfarm payrolls will have increased by 170,000 jobs last month, following a surge of 256,000 in December. It is estimated that wildfires in Los Angeles eliminated up to 25,000 jobs, primarily in the accommodation and food services sectors.
Frigid temperatures and snowfall across the country are believed to have disrupted construction activities and other segments of the leisure and hospitality industry, potentially leading to a loss of approximately 15,000 jobs.
The final employment report under the Biden administration is expected to show a slower rate of job growth from April 2023 to March 2024 compared to previous estimates. The government initially estimated the reduction in employment to be around 818,000 jobs but has since revised that figure to around 675,000-700,000 jobs based on updates to source data.
Revisions to the payrolls count from April to December are anticipated to reflect new seasonal factors and information. The benchmark revision will also impact average hourly earnings and work hours.
Average hourly earnings are projected to rise by 0.3%, matching December's increase. This would lower the annual wage increase to a healthy 3.8% from 3.9% in December.
"We anticipate the annual revision to reduce the pace of growth by 35,000, with an average reduction of approximately 70,000 over the April 2023-March 2024 period," said Andrew Husby, a senior U.S. economist at BNP Paribas Securities. "Although a more significant impact on recent momentum is possible, we remain skeptical considering the robust economic growth."
Some economists argue that the concentration of job growth in lower-paid industries, such as leisure and hospitality, healthcare, and social assistance, may be masking an ongoing white-collar recession. They advocate for the Fed to consider further rate cuts.
"Many jobs in the middle and higher income brackets have vanished," said Sung Won Sohn, a finance and economics professor at Loyola Marymount University. "The economy might not be as robust as one might perceive based solely on the monthly payroll numbers. I hope the Fed will acknowledge this."
The U.S. central bank opted to maintain its target interest rate within the 4.25%-4.50% range last month after reducing it by 100 basis points since its policy easing cycle began in September. The policy rate was increased by 5.25 percentage points during 2022 and 2023 to combat inflation. Financial markets anticipate a rate cut in June.
Concerns arise regarding the potential impact of mass deportations and tariffs on the labor market this year, which could reduce labor supply and discourage businesses from hiring due to increased costs. The Trump administration's initiatives to reduce federal government jobs may also curb employment growth.
The employment report for January will incorporate new population controls for the household survey used to calculate the unemployment rate. These new weights are expected to inflate the labor force size and boost household employment, narrowing the discrepancy with nonfarm payrolls.
Economists have previously argued that the household survey failed to reflect the surge in immigration, contributing to the disparity with the establishment survey. While the unemployment rate is not typically swayed by population controls, January's rate will not be directly comparable to December due to a series break.
"The current underlying pace of job growth hovers around 150,000 and should moderate further in early 2025, due to both a decline in demand for workers as the economy decelerates and a reduction in labor supply growth resulting from stricter immigration policies," said Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets. "Businesses will likely adopt a cautious approach to investments and hiring in early 2025 amid the considerable policy-related uncertainty that firms face in the short term."