U.S. Labor Market Outlook: What to Expect in Early 2025

As we step into 2025, the U.S. labor market is poised for a new phase of growth, albeit at a slightly slower pace than the previous year. The upcoming release of the Bureau of Labor Statistics (BLS) nonfarm payroll report for January is anticipated to reveal an addition of approximately 169,000 jobs. This figure signals a dip from the 256,000 jobs added in December, yet it aligns closely with the average growth seen over the past three months.

The unemployment rate is expected to remain stable at 4.1%, suggesting a solid employment landscape. While some may interpret the slower job creation as a sign of weakness, it’s essential to recognize this in a broader context. The employment picture remains robust, with experts suggesting that the job market remains largely unaffected by short-term fluctuations.

“With inflation under control and companies comfortable with making sustained investments, we should see job growth around 150,000 per month, which maintains a stable labor market,” notes Joseph Brusuelas, chief economist at RSM. “We are essentially at full employment, and this is a situation policymakers are more than willing to navigate.”

The Federal Reserve’s Stance: What’s Next?

In late 2024, the Federal Reserve cut its key borrowing rate by a full percentage point in response to signs of a labor market slowdown. However, the recent data suggests a different narrative; while hiring may be stabilizing, layoffs have not surged, and employees appear less inclined to leave their positions. Additionally, although job openings are on the decline, the relative stability in employment is a hopeful sign.

Market participants will be keenly observing how the Fed acts in the upcoming months. With President Donald Trump’s fiscal agenda—which includes aggressive tariffs on major trading partners—looming over the economic landscape, the Fed might maintain its hold on rates until summer.

Brusuelas captures the sentiment perfectly: “The economy will keep rolling; individuals will make investment decisions and go to work each day.”

Annual Revisions: A Key Focus

While the headline payroll numbers may suggest a status quo in employment, all eyes are also on the annual benchmark revisions the BLS will publish. The revisions will provide a more accurate picture of the labor market by adjusting previous employment counts for factors like immigration and population changes.

In August 2024, revisions revealed that 818,000 fewer jobs were created than initially reported from April 2023 to March 2024. It is expected that as adjustments are made, the outlook will be more favorable, forecasting a whopping 3.5 million increase in population and 2.3 million in household employment, according to Goldman Sachs.

The contrasting results of the BLS’s establishment and household surveys in the post-COVID era have created confusion. While the establishment survey typically indicates nonfarm payroll numbers, the household survey has painted a less optimistic portrayal of employment conditions. These revisions might just be the correction needed for a more balanced view.

What’s Coming Next?

Whatever the January report reveals, analysts are not expecting it to sway Fed policy significantly. Eric Winograd, director of developed market economic research at AllianceBernstein, remarks, “The labor market is vastly more critical to the Fed than tariff situations. While payroll figures can be unpredictable, there’s little that suggests this month’s numbers will differ significantly from previous ones, keeping the Fed likely on hold.”

In addition to the payroll data, the BLS will also release information on average hourly earnings, which is projected to show a 0.3% increase in wages for January, and a year-over-year increase of 3.7%—the lowest recorded level since July 2024.

At Extreme Investor Network, we strive to keep our audience informed with timely, accurate, and in-depth economic insights. Our focus remains on navigating the market landscape amid uncertainty, ensuring you have the tools and knowledge to make informed decisions. For continual updates and nuanced economic analysis, be sure to follow us closely as we track labor market trends and their implications for the economy.