Kiplinger Jobs Outlook: Solid Labor Market Despite Slowdown

last updated 7 February 2025

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Job gains fell by more than half in January to 143,000, from 307,000 in December, but there were underlying tones of strength. Job gains in November and December were both revised up by about 50,000, making January’s gain from a higher level. January employment could have been tamped down by winter storms and the California wildfires.

Post-Christmas layoffs were smaller than usual in the retail sector, an indication of still-strong consumer demand. The health care sector continued its hiring spree, adding 43,700 workers, and state and local governments continued to play catch-up after the pandemic by adding 21,000 workers. On the weaker side, motor vehicle producers cut back by 9,700 jobs, and temporary help continued its lackluster ways by declining 12,400, its 33rd decline out of the past 34 months. E-commerce delivery and warehousing dropped by 7,800, and hotels and restaurants fell by 17,500 after six months of robust growth. This also could have been the result of weather and wildfires.

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The unemployment rate dipped again, to 4.0%. The number of long-term unemployed has continued to decline. There is some evidence that these are not simply dropping out of the labor force.

Average hourly earnings jumped in January, possibly because of inflation adjustment catch-ups that are still greater than normal. Wage gains were 4.1% over the previous 12 months for all workers, and 4.2% for production workers. Progress on reducing wage growth has stalled over the past six months. The Federal Reserve would like to see annual wage gains come down to 3% or 3.5%, given that stronger wage growth could make it harder to bring overall inflation down to the Fed’s goal of 2%. The Fed would also like to see monthly job gains continue to be below 200,000, which would suggest that the labor market will not overheat again.

A return to more typical levels of hiring in the labor market is likely, with future monthly job gains probably in the 150,000 range. Recent job market strength has been far above that of labor force growth. Eventually, state and local government agencies will fill the vacancies they experienced during the pandemic. Also, the goods-producing sector is still showing weakness. There were job losses in nondurable manufacturing, and in e-commerce delivery and warehousing. Temp jobs may continue their downtrend of more than two years. These jobs are often in the manufacturing sector and tend to be cut first when demand for manufactured goods softens.

David is both staff economist and reporter for The Kiplinger Letter, overseeing Kiplinger forecasts for the U.S. and world economies. Previously, he was senior principal economist in the Center for Forecasting and Modeling at IHS/GlobalInsight, and an economist in the Chief Economist's Office of the U.S. Department of Commerce. David has co-written weekly reports on economic conditions since 1992, and has forecasted GDP and its components since 1995, beating the Blue Chip Indicators forecasts two-thirds of the time. David is a Certified Business Economist as recognized by the National Association for Business Economics. He has two master's degrees and is ABD in economics from the University of North Carolina at Chapel Hill.