The U.S. economy added 143,000 jobs in January, a slower pace than expected, according to the Labour Department. This report comes as the Federal Reserve continues to monitor inflation and the labour market before making decisions about interest rate cuts.

January Jobs Report Overview

The January employment numbers were below the 200,000 jobs many economists predicted. However, the unemployment rate decreased to 4%, better than economists’ forecasts.

The job gains from the previous two months were also revised upward. November’s job growth was revised up by 49,000, bringing the total to 261,000 jobs added. December’s job growth was revised up by 51,000, increasing the total to 307,000. These revisions added 100,000 more jobs than initially reported.

Private Sector Employment

In the private sector, employers added 111,000 jobs in January, lower than the 141,000 expected. However, wage growth was higher than anticipated. Average earnings rose by 0.5% month-over-month, and 4.1% compared to last year, exceeding estimates of 0.3% monthly growth and 3.8% year-over-year growth.

Sector-Specific Employment Gains

Several industries showed notable growth. The healthcare sector led job gains, with 43,700 new positions added in January. Key drivers included hospitals, nursing homes, and home health care services.

Retail added 34,300 jobs, with strong growth in general merchandise stores and furniture retailers. However, electronics and appliance stores saw a decrease in employment.

The government sector contributed 32,000 new jobs, aligning with its monthly average for 2024. Meanwhile, social assistance services grew by 22,300 jobs, with most of the increase coming from individual and family services.

Challenges in the Mining and Energy Sectors

The mining, quarrying, and oil extraction industries experienced a loss of 7,700 jobs in January, primarily in mining support activities. This sector showed minimal net change in 2024.

Labour Force Participation and Long-Term Unemployment

The labour force participation rate remained steady at 62.6%. The number of long-term unemployed individuals—those without a job for 27 weeks or more—remained unchanged at 1.4 million. These individuals made up 21.1% of all unemployed workers.

Fed’s Response to Job Market Trends

The Federal Reserve is closely watching employment trends. Despite the lower-than-expected job growth, upward revisions to past months and the drop in the unemployment rate are influencing the Fed’s decisions. Fed officials have noted that the labour market is broadly in balance, with inflationary pressures not solely driven by employment.

Economists like Ellen Zentner from Morgan Stanley believe the report could reduce expectations of immediate interest rate cuts. Similarly, LPL Financial’s Jeffrey Roach called the January report a “Goldilocks” scenario—neither too strong nor too weak—suggesting the Fed may hold off on rate changes in the near term.

Looking Ahead

With the next Fed meeting scheduled for March 18-19, the market responded to the January jobs report by increasing expectations that interest rates will remain unchanged. The likelihood of the federal funds rate staying between 4.25% and 4.5% rose to 91.5%, up from 84% the previous day.