The economy added 143,000 jobs in January, slightly less than most analysts had expected. The unemployment rate fell to 4.0 percent, keeping it in the narrow range between 4.0 percent and 4.3 percent that it has been in since May. The unemployment rate would have fallen by 0.2 percentage points, except for the impact of new population controls included in the January data.

The slowing job growth was to be expected. This is partly due to the extraordinarily rapid growth of 273,000 jobs reported for December. If employers hire a lot of workers in December, they will not do it again in January.

It is likely that the wildfires in Los Angeles also had an impact. Some businesses were destroyed by the fire, but the bigger effect on the jobs numbers is probably due to hires being delayed by closings. In the hotel and restaurant sector, where there is rapid turnover, employment fell by 17,500. It’s also worth noting that the job numbers for November and December were revised up by a total of 100,000.

We are likely also seeing the effect of tighter immigration restrictions that Biden put into effect last June. We may also be seeing some impact of Trump’s deportation policies, with some undocumented workers fearful of showing up at their jobs. This could show up in sectors with a large share of undocumented workers like construction and food processing.

Last Jobs Report of the Biden Administration Leaves a Remarkable Labor Market Record

This report is the last one owned by the Biden administration. While Trump took office on January 20, the date for the reference period is the 12th – which puts the month almost entirely within Biden’s term.

On the jobs side, we have generated 16.16 million jobs during his term. While some of this is due to a bounce back from the pandemic recession, even if we use February 2020 as the basis for comparison, the last month before the pandemic, we still created 6.87 million jobs.

The Congressional Budget Office had projected the economy would create just 2.4 million jobs over this period in its last pre-pandemic projections. It is also important to remember that the rapid pandemic jobs rebound had slowed by the time Biden took office. Job growth over the last three months of the Trump administration averaged just 151,000.

The story in the household survey is also very impressive. The unemployment rate for Biden’s term averaged 4.1 percent, the lowest rate for any president since Johnson’s last term in office. The employment-to-population ratio for prime age workers (ages 25 to 54) hit its highest level in more than two decades, and for women it reached an all-time high. We also hit record lows for the unemployment rate of Black workers and Black teens and tied the record low for Hispanic workers.

Unlike in most countries, workers saw real wage gains over the Biden term, in spite of the pandemic. The average real hourly wage for all workers was 1.8 percent higher in December than it had been before the pandemic. (We don’t have January price data yet, so we can’t calculate real wages for the month.) Lower paid workers saw much larger pay gains, with the real hourly wage for non-supervisory workers in hotels and restaurants rising 8.3 percent. (The smaller wage gains for higher-paid workers were supplemented by a huge increase in the opportunity to work from home.)

Wage Growth and Productivity Growth

The average hourly wage rose 4.1 percent over the last year. It has risen at a 4.5 percent annual rate over the last three months. This is a modest acceleration from its recent pace, but it is likely driven in large part by a compositional shift. There was a big fall in hours, possibly due to the wildfires in Los Angeles, in the low-paid retail and leisure and hospitality sectors. This would raise average wages in the economy.

If productivity growth stays near the 2.0 percent rate we have seen since the pandemic, we can likely sustain a 4.0 percent pace of nominal wage growth and still hit the Fed’s 2.0 percent inflation target. Productivity growth did slow to 1.2 percent in the fourth quarter, but that may have been an anomaly associated with the drag to GDP growth from slow inventory accumulation. (Inventories subtracted 0.93 pp from growth in the quarter.) It’s also worth noting that productivity growth over the last year will be revised up by around 0.4 pp due to the 610,000 downward revision to employment from the benchmark data that was included with this report.

The index of aggregate hours fell by 0.2 percent in January. It is now 0.2 percent below the average for the fourth quarter. If hours growth remains weak, it will likely mean a good quarter for productivity growth.

Health Care Again Leads Job Growth

The health care sector was the leading job gainer, adding 43,700 jobs, somewhat less than its 57,000 average over the prior year. The sector governments added 32,000 jobs in January, mostly at the state and local level.

The retail sector added 34,300 jobs. This is to a large extent a seasonal adjustment problem. Retailers are adding fewer workers during the holiday season than in the past. This means there are fewer layoffs in January, which appear as job gains with an outdated seasonal adjustment factor. Together, these three sectors accounted for more than three-quarters of the job growth in the month.

We are likely to see a different picture in future months, as the Trump administration’s freezes and funding cutoffs lead to layoffs and discourage hiring in both health care and government.

Manufacturing and Construction Show Modest Job Gains

Manufacturing gained 3,000 jobs in January, reversing a modest downward trend over the last year. The sector is down 105,000 jobs over the last year, but still 18,000 above its pre-pandemic level

Construction gained 4,000 jobs but has seen slow growth over the last four months, averaging gains of just 6,000. By comparison, in the year from September 2023 to September 2024, gains averaged 18,200 a month.

Prime Age Employment-to-Population Ratio Rises 0.2 Percentage Points

The employment-to-population ratio for prime age workers (ages 25 to 54) edged up to 80.7 percent. This is below the post-pandemic peak of 80.9 percent, but slightly above the pre-pandemic peak of 80.6 percent.

Another Very Solid Report

There is again very little not to like in the jobs report. The slower job growth in the establishment survey was expected, especially given the large upward revisions to the prior two months’ data. The drop in the unemployment rate was very good news. There had been some concerns that the household survey was showing a weaker labor market picture than the establishment survey, but with the lower unemployment and large gains in employment resulting from the new population controls, both show a picture of a very solid labor market.