2025 Begins with Steady Employment Growth

U.S. employers added 143,000 new jobs in January, a little less than economists had expected, according to the latest employment report from the U.S. Bureau of Labor Statistics (BLS), released Feb. 7.

The job counts for November and December were revised upward by a combined 100,000 and the unemployment rate for January dipped down to 4.0%, near historic lows.

The job market is moderating but remains strong. Recent indicators show that while hiring has leveled off, layoffs aren’t appreciably increasing, and workers aren’t quitting. Job openings, however, are on the decline.

The latest jobs report also featured significant benchmark revisions to recent employment totals. There were 589,000 fewer jobs added to payrolls in the 12 months through March 2024 than previously reported. In addition, a final count of reported numbers for 2024 shows the year’s employment total was revised down by 236,000 jobs.

“The foundation of the labor market remains incredibly sturdy,” said Cory Stahle, an economist at the Indeed Hiring Lab. “Revisions to the past year’s data may have rearranged a few rooms in the house, but they did not fundamentally change the structure. Despite somewhat smaller-than-expected job gains in January, the job market is kicking off 2025 with considerable momentum, with unemployment unexpectedly ticking down and wage growth picking up.”

Still, there are a few cracks worth monitoring, Stahle said: “Hiring and quitting activity remain near decade lows, and growth in prime-age labor force participation is showing signs of slowing.”

Geno Cutolo, president of Adecco North America, said that while economists were expecting job gains closer to 170,000, there “were some bright spots. But January won’t necessarily be a barometer for what the remainder of the year is going to look like,” he added, pointing to seasonal trends and anomalies such as the cold snap on the East Coast and the wildfires that devastated Los Angeles. “As we look ahead, we expect to see a strong sense of resiliency and durability in the market.”

Julia Pollak, chief economist at ZipRecruiter, said that “the combination of stronger-than-expected wage growth, a lower unemployment rate, and a stabilizing labor force suggests the labor market is still running hotter than many anticipated. Employers have not found relief on pay pressures, and as long as joblessness remains low, wages are unlikely to ease significantly.”

The January jobs report reflects a market that remains challenging for those looking for jobs, said Ger Doyle, U.S. country manager at ManpowerGroup. “2025 is shaping up to be another year of significant changes,” he said. “Our real-time data show total open job postings declined 3%, indicating a slight contraction in overall job demand. Despite the overall decline, there are signs of increased hiring activity.”

These trends reveal a labor market in limbo, said Noah Yosif, chief economist at the American Staffing Association. “While workers on the sidelines will continue to face challenges re-entering a tight labor market, the lack of layoffs means less competition for open positions when companies eventually decide to hire again,” he said.

Looking ahead, the labor market remains on uncertain footing, Pollak said. “A stronger consumer is keeping parts of the economy afloat, but high interest rates continue to drag on investment and production,” she explained. “If hiring in goods-producing sectors remains flat, job growth will depend on continued strength in consumer-facing industries.”

Last week, the Federal Reserve hit the pause button on interest rate cuts. Federal Reserve Chair Jerome Powell said the Fed would need to see more progress on inflation or unexpected weakness in the labor market before considering further rate reductions.

“This lack of labor churn is enough for the Fed—whose strategy for reducing inflation does not require a growing labor market, just a stable one—to keep interest rates at current levels for the foreseeable future,” Yosif said.  

In addition, experts are uncertain how the labor market will respond to several White House policies taking shape, including an immigration slowdown, tariffs, tax cuts, and the potential reduction of the federal government workforce.

Industry Breakdown

Job growth for January was concentrated in health care (44,000), retail (34,000), and government (32,000), while mining-related industries lost 8,000 jobs.

“The composition of job growth continues to be health care heavy,” said Andrew Flowers, chief economist at Appcast. “The diffusion index, which measures the breadth of job growth across various industries, ticked up slightly. While that’s a good sign, because labor market growth concentrated in a few industries is perhaps more precarious, the bigger picture is that most industries outside of health care are seeing moderation.”

Doyle said the health care sector accounted for seven of the top 25 employers in January, according to ManpowerGroup data, but legal demand increased 52% and was the top new job posting for the month as businesses prepare for potential federal policy shifts.

“The gains were concentrated in the service sector, while production jobs stalled under the weight of high interest rates,” Pollak said. “Manufacturing and other goods-producing industries showed no net job gains, reflecting the ongoing impact of tight financial conditions on capital-intensive sectors.”

Unemployment Dips Due to Population Growth

The unemployment rate ticked down as labor force participation increased, rising to 62.6%. A broader unemployment measure that includes discouraged workers as well as those holding part-time jobs for economic reasons held steady at 7.5%.

“One of the strongest indicators of labor market health, the prime-age employment-population ratio, rose to 80.7%, inching closer to its recent peak,” Pollak said.

Wages Rise

While job gains were muted, wages rose more than expected. “Wage growth remained firm at 4.1% year-over-year, reinforcing the challenge employers continue to face in recruiting and retaining workers,” Pollak said.

“Wage growth seems hot, but don’t fret,” Flowers said. “Recent productivity reports have been strong, suggesting that strong nominal wage growth can be sustained without raising inflation.”

Looking Back

The BLS revised 2023-2024 job growth down while revising the overall number of people in the labor force upward. Flowers explained that the agency annually revises previously reported results after receiving more accurate but delayed payroll and state unemployment insurance records data, as well as adjusted population counts from the U.S. Census Bureau.

“The 2023-2024 U.S. labor market was less tight than we thought,” Flowers said. “Monthly job gains in the 12 months through March 2024 were actually about 50,000 lower [per month] than initially reported.”

Labor force numbers were revised upward as well, mainly because the growth in the number of immigrants was far greater in recent years than initially reported. 

“This boosted the reported level of employment by more than 2 million,” Flowers said. “However, this jump isn’t driven by a sudden surge in employment. Instead, it reflects an updated estimate of immigration that was previously undercounted.”