The first jobs report of 2025 paints a picture of a resilient labor market. But as always, there’s a lot more going on below the surface. This report has big implications for employers and HR regarding compensation planning.
U.S. businesses added 143,000 new jobs, just below expectations of around 170,000. The unemployment rate ticked down for the second straight month to 4%, and 12-month wage growth rose to 4.1% from 3.9% in December.
Digging deeper | Revisions point to slower growth, but the story remains the same
Each year with the January jobs report, the BLS revises estimates of the labor force and employment as a result of recalibrations to population benchmarks.
Reminder: these revisions are a normal part of the complex process of providing detailed data on the U.S. workforce and should not cause alarm.
Some Background
For the monthly jobs report, there are two major monthly surveys that provide the data on employment, unemployment, wages, and labor force participation.
Job gains (the monthly change in nonfarm payroll employment) and wage growth are from a survey of around 120,000 businesses (the “establishment survey”) about hiring and compensation. But the unemployment rate and labor force (a component of the labor force) comes from a survey of 60,000 households (the “household survey “) about labor force status – whether members of the household are employed, unemployed and looking for work, or out of the labor force.
What do January’s revisions tell us?
There was good and bad news with the revisions in the January jobs report.
Employment for March 2024, as measured by the establishment survey, was substantially lower than originally reported – specifically, there were 598,000 fewer workers. However, there is actually some good news in this downward revision because original estimates suggested the downward revision would be more than 800,000. These revisions mean job gains actually averaged 166,000 each month last year, compared to the 186,000 originally reported.
As I’ve pointed out before in this newsletter, revisions are essentially old news. We’ve already lived through the 2024 labor market, and we have known hiring was slowing down for nearly two years.
While there were large downward revisions to the establishment survey’s measure of employment, the household survey’s revisions showed labor force participation nearly 2.2 million above original estimates, largely driven by an undercount of immigrants.
The disconnect between the household and establishment surveys is tied to immigration (both legal and illegal) as well gig employment. The establishment survey captures legal employment by U.S. businesses, and its estimates will not capture work activities of illegal immigrants or gig and contract workers. The household survey simply asks whether members of the household are employed. It’s important to note that even with an undercount of the labor force, the unemployment rate has remained low by historical standards.
️ Key Takeaways
- Revisions are a normal part of labor market data reporting.
- Hiring was cooler over the past couple of years than originally reported.
- Revised estimates don’t change the story of a cooling, yet resilient, labor market.
Wages and compensation | Employers and HR, take note!
Wages grew by 4.1% year-over-year in January, up from 3.9% in December. One of the biggest surprises in the labor market over the past year has been the persistence of wage growth despite lower hiring volumes and turnover.
This is great news for workers, but presents a challenge for businesses who may not have included these wage growth projections in their headcount budgets.
Job gains | Solid start to 2025
While the 143,000 jobs added in January came in just below expectations, hiring totals for November and December were 100,000 higher than previously reported. This jobs report provided some welcome evidence that labor market cooling, which accelerated in summer 2024, appears to be stalling.
It’s also important to note that the tragic fires in Los Angeles could have lowered hiring totals as well as average hours worked, especially in leisure and hospitality.
Industries | A few sectors continue to dominate
Once again, government (+32,000) and healthcare (+44,000) led the pack in terms of job gains. Retail (+34,300) bolstered the broader trade, transportation, and utilities sector (+38,000).
Trends to Watch
Industries relying heavily on immigration, such as construction, could face a talent crunch as a result of reduced legal immigration and more deportations. A lower talent supply could put pressure on wages and cause businesses to poach talent from other industries.
Government has produced big job gains over the past couple of years, but that trend could reverse as shifts in policies and funding take shape.
Unemployment rate | Coming down, but a tough labor market for job seekers
The unemployment rate ticked down to 4% in January. Hiring volumes have slowed, but layoffs remain near historic lows. The good news is that most people who want a job have one. However, for job seekers, a slowdown in hiring means it can be much harder to find a job now than it was a year ago.
LaborIQ provides HR teams and business leaders with market-competitive compensation benchmarks. In an evolving job market, you need to know what salaries to offer to retain employees and fill open positions faster.
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