January jobs report expected to show that hiring slowed last month

All eyes will be on the January jobs report when it is released Friday morning, as investors look for clues about the labor market’s health in the face of higher interest rates and still-high inflation.

The Labor Department’s high-stakes January payroll report, due at 8:30 a.m. ET, is projected to show that hiring increased by 180,000 last month and that the unemployment rate inched higher to 3.8%, according to a median estimate by Refinitiv economists.

That would mark a decrease from the 216,000 gain in December and the average monthly gain of 225,000 recorded over the previous 12 months.

“For the January employment snapshot, the consensus is that we’ll see slower hiring, falling short of the 216,000 jobs added in December,” said Mark Hamrick, senior economic analyst at Bankrate. 

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The Federal Reserve is closely watching the report for evidence that the labor market is finally softening after months of surprisingly solid job gains as policymakers try to ensure that inflation continues to ease. The consumer price index has cooled considerably in recent months but remains above the Fed’s preferred 2% target, despite 11 interest rate hikes in the span of 16 months.

IS THE FEDERAL RESERVE DONE RAISING INTEREST RATES?

Slower job growth and further moderation in wage gains could be a welcome sign for the U.S. central bank, which held interest rates steady for the fourth straight month after its meeting on Wednesday. Policymakers signaled that they are finished with their tightening campaign and prepared to cut interest rates – though not imminently. 

Average hourly earnings, a key measure of inflation, are expected to increase 0.3% for the month and climb 3.8% from the same time one year ago.

“We doubt the January report will change Federal Reserve officials’ view favoring a measured easing of monetary policy in the coming months, but robust job growth and wage growth above 4% will favor some hawkish communication,” said Lydia Boussour, EY senior economist.

However, Boussour warned there may be some “noise” in the data because of the Labor Department’s annual benchmark revisions, in which it updates seasonal adjustment factors and adjusts for updated population estimates for the household survey.

The labor market has remained historically tight over the past year, defying economists’ expectations for a slowdown. Economists say it is beginning to slow after last year’s blistering pace, but have said it is nowhere near breaking. 

A separate report released Thursday by Challenger, Gray & Christmas found that the pace of job cuts by U.S. employers accelerated at the start of 2024.

Findings from the firm indicate that companies planned 82,307 job cuts in January, a substantial 136% increase from the previous month. However, that is down about 20% from the same time one year ago. It marked the second-highest layoff total for the month of January in data going back to 2009.

The data points to a labor market that is moderating in the face of growing headwinds.