NEWS AND INSIGHTS | INSIGHTS

CIO Notebook: January Payrolls Light but U.S. Labor Market Still Strong

February 07, 2025
Shannon Saccocia, CFA, Chief Investment Officer—Private Wealth

Today’s release reflects a U.S labor market in balance and it is likely that the Fed will keep the fed funds rate at the current level at the next meeting with their focus moving to the potential inflationary impact of tariff

January’s non-farm payrolls release came in modestly below expectations, up only +143k versus the consensus estimate for +166k. Driving the print were notable gains in health care, retail, and social assistance (+44k, +34k, and +22k, respectively), as well as government (+32k) which has yet to reflect the Trump Administration’s efforts to decrease federal payrolls.

More constructive were the upward revisions to November and December’s already strong prints, with +49k and +51k added respectively to the tallies. Despite these revisions, however, the average non-farm payrolls growth on a monthly basis was revised lower to +166k from +186k for 2024. This downward revision had been expected and was perhaps less dramatic than what economists had thought.

While payrolls came in light, average hourly earnings were much stronger than expected, up +0.5% month-over-month versus the expected +0.3%. This was likely skewed higher by a tick lower in average hours worked to 34.1; this was led by a decline in services hours worked, likely a byproduct of both weather and the Los Angeles area wildfires.

The household survey was strong for the second month in a row, as employed persons rose by 2.2 million and unemployed persons declined modestly; both reflect the population adjustments by the Bureau of Labor Statistics to account for recent immigration trends. The unemployment rate continued to decline, falling back to 4.0% from 4.1% in December, even as the participation rate increased to 62.6% from 62.5%.

When taken in aggregate, the report reflects a U.S labor market in balance, and it is likely that the Fed will keep the fed funds rate at the current level for the next meeting. Putting this month’s reading aside, there is little evidence that last year’s strong GDP growth is translating to meaningful, potentially disruptive wage gains. More importantly, the state of the labor market implies a greater emphasis on the inflation side of the mandate and that points to a keen interest in the outcome of tariff discussions. (Please click here to read our February 3rd CIO Notebook: Trump Comes Out Swinging on Trade.) While currently on hold for Canada and Mexico, we anticipate that there will be additional announcements around tariffs for Europe as well as an expansion of the tariffs on China – all of which could increase costs for U.S. consumers, at least in the short term, and could put pressure on the Fed to remain on hold even longer.

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