In January, the U.S. non-farm payrolls increased by 143,000, significantly lower than expected, while the unemployment rate unexpectedly dropped to 4%, with the annual revision lower than anticipated

The U.S. January non-farm payroll data and the annual revision of non-farm data both indicate that the labor market has slowed down but remains robust, capable of supporting the country's economic growth without causing additional inflationary pressure. This also explains why the Federal Reserve is currently not in a hurry to cut interest rates further after three rate cuts last year.

The U.S. Bureau of Labor Statistics released data on Friday showing that the U.S. non-farm payrolls increased by 143,000 in January, the lowest level in three months, far below the expected 175,000. Meanwhile, the number of new jobs added in December was significantly revised up from 256,000 to 307,000. November data was also revised. The total revision for November and December was an increase of 100,000 jobs.

The unemployment rate in January was 4%, lower than the expected and previous value of 4.1%. However, it should be noted that due to population adjustments, this unemployment rate data is not fully comparable to previous months. Nevertheless, the U.S. Bureau of Labor Statistics stated that if the impact of population adjustments is excluded, the unemployment rate has still decreased compared to December.

The Bureau of Labor Statistics stated that the wildfires in Los Angeles and severe winter weather in other parts of the U.S. had "no significant impact" on employment for the month. Nonetheless, nearly 600,000 people were unemployed last month due to severe weather, the highest level in four years. Additionally, 1.2 million people who usually work full-time could only find part-time work due to weather conditions.

Factors such as weather also affected working hours, bringing them down to the lowest level since the outbreak of the pandemic. Meanwhile, average hourly earnings in January increased by 0.5% month-on-month, higher than the previous value and the expected 0.3%; year-on-year, it increased by 4.1%, with an expectation of 3.8% and a previous value of 3.9%.

The labor force participation rate in January was 62.6%, which includes the latest population estimates. The labor force participation rate for workers aged 25 to 54 was 83.5%.

The non-farm report also showed that job growth in January was mainly concentrated in: healthcare, which added 44,000 jobs; retail, which added 34,000 jobs; and government, which added 32,000 jobs. Employment in mining, quarrying, oil and gas extraction, temporary help services, and automobile manufacturing declined.

Major Annual Revision of Non-Farm Data

The non-farm payroll report consists of two surveys: one is a survey of businesses that produces employment data; the other is a survey of households that produces unemployment rate data.

The non-farm employment data is initially released based on a large-scale monthly survey of business employers, but it will be revised later. The U.S. Bureau of Labor Statistics uses records from the unemployment insurance tax system and adjusts previously released employment data based on the opening and closing of businesses. The data released on Friday includes the annual update of the business survey portion, which is highly anticipated by the market and is considered one of the highlights of this non-farm report.

The latest report shows that over the 12 months ending in March 2024, the number of jobs added was 589,000 fewer than initially reported, a decrease lower than last August's preliminary estimate of 818,000, which was expected to be the largest since 2009 Previously, economists expected the actual downward revision to be around 600,000 to 700,000 people.

The household survey reflects new population estimate data provided by the Census Bureau, which has boosted employment numbers in the labor market. Immigration to the United States surged starting in 2021. In December of last year, the Census Bureau significantly raised its population estimates, with a substantial portion of the growth coming from foreign-born workers, indicating that immigration remains a key driver of job growth in recent years.

Last month, the labor force increased by 2.2 million, the largest since data has been available in 1948, with most coming from foreign-born workers.

The new estimates have been reflected in the Labor Department's January statistics, but past data will not be revised.

The Bureau of Labor Statistics stated that although this adjustment has a significant impact on the total population, its effects on the unemployment rate, employment-population ratio, and labor force participation rate are relatively small. The adjustments raised the overall unemployment rate, employment-population ratio, and labor force participation rate by 0.1 percentage points each.

Goldman Sachs stated in a previous report that the January non-farm payrolls in the U.S. will see the largest adjustment in history, with immigration data undergoing major revisions. The Census Bureau raised its net immigration estimates for 2021-2024 by 3.5 million in December last year. After the annual benchmark revision of the household survey, the total labor force is expected to increase by 2.5 million, household employment by 2.3 million, the labor force participation rate by 11 basis points, and the unemployment rate by 4 basis points.

Market Reaction

After the non-farm data was released, U.S. stock index futures fell sharply, U.S. Treasury yields rose briefly, the dollar strengthened, and gold prices fell before quickly rebounding:

• Nasdaq futures fell by 0.18%, S&P 500 futures fell by 0.11%, and Dow futures fell by 0.02%.
• U.S. Treasury yields rose briefly, with the 10-year Treasury yield increasing by more than 4 basis points during the day, reported at 4.481%.
• The dollar index rose briefly, increasing by 0.3% during the day.
• Spot gold prices fell, with the day's increase narrowing to 0.11%.

Analysis and Commentary

Although the employment growth for the month was below expectations, the previous month's data was significantly revised upward, and the unemployment rate unexpectedly declined. Overall, this non-farm report did not provide greater room for the Federal Reserve to consider interest rate cuts.

Nick Timiraos, a well-known financial journalist known as the "new Fed whisperer," stated that the January non-farm employment report is unlikely to change the Federal Reserve's wait-and-see attitude. The Federal Reserve is currently focused on evidence of inflation returning to target levels, and the labor market is not expected to be a source of inflationary pressure in the short term. If the labor market further slows in the future, it may reignite discussions within the Federal Reserve regarding interest rate cuts.

Currently, Federal Reserve officials are dealing with the slow cooling of inflation and the uncertainties brought about by new policies from the Trump administration. Federal Reserve Chairman Jerome Powell recently stated that the labor market is "quite stable," but he and other officials do not wish to see the labor market cool further.

BlackRock senior portfolio manager Jeff Rosenberg told Bloomberg, the non-farm data is mixed, but the key point is "this is a very strong labor market," and it will not change the Federal Reserve's policy outlook. The non-farm payroll report for January is the last employment report of the Biden administration. It remains to be seen how the directives of the new Trump administration will affect the labor market. Tens of thousands of U.S. government employees have already accepted the "resignation buyout plan" proposed by the Trump administration, and the White House is taking further measures to reduce the size of the federal workforce. Additionally, any efforts to restrict immigration or deport immigrants will suppress key drivers of job growth in recent years.

JP Morgan analysts expect that the slowdown in U.S. immigration may soon begin to impact the growth of non-farm employment, potentially affecting the employment report to be released in February.

The nominee for U.S. Secretary of Labor, appointed by Trump, will undergo hearings in the Senate committee next week. The department is responsible for overseeing the Bureau of Labor Statistics (BLS). Republican Representative Lori Chavez-DeRemer from Oregon needs to gain committee approval before her nomination can be submitted to the full Senate for consideration