Jobs in the US Start the Year Strong, but Numbers Hide a Slowdown

The latest jobs report, due Wednesday, is expected to show unemployment staying at 4. 4 percent. The Fed watches this figure closely because it helps gauge the labor market’s health, especially after President Trump tightened immigration rules. Those limits cut the number of new workers who can enter the workforce, so fewer jobs are needed to keep unemployment steady. Some studies say that by this year the “break‑even” number of jobs could even fall below zero. Inflation is also a key concern for the Fed. Trump’s tariffs have pushed prices up, though not as hard as early forecasts suggested. Officials expect the worst of those tariff effects to have happened in the first quarter, after which inflation should ease. The January Consumer Price Index will confirm whether that expectation holds true. Analysts predict annual inflation to drop to 2. 5 percent after a modest 0. 3 percent monthly rise, while core inflation—excluding food and energy—will stay around 2. 5 percent. A quarterly wage measure from the Labor Department recently slowed, hinting that labor‑related price pressure remains muted. Evercore ISI economists said the data shows an “underlying cooling” in the economy, even though tariff costs might linger for another six months. Meanwhile, larger tax refunds and a boom in artificial‑intelligence investment could still push growth forward. Last week’s job openings data fell to the lowest level since December 2017. Yet at a recent Fed meeting, Chair Jerome Powell sounded optimistic, noting that the labor market was “stabilizing” after last year’s weakness and that consumer spending and business investment were still strong. This upbeat tone helped justify the Fed’s pause on rate cuts after a string of reductions earlier in the year. Debate remains within the Fed over how much to weigh labor market softness versus inflation. Some governors, like Stephen Miran and Christopher Waller, have voted for further cuts despite the slow job growth. Waller warned that last year’s jobs data might show no increase at all, calling the market “unhealthy. ” Future cuts will depend on whether hiring resumes broadly or inflation eases significantly. Powell has said no timeline is set, and he downplayed the chance of a rate hike this year.Market expectations point to a first rate cut in June, with rates potentially falling toward 3 percent by year‑end—a level many officials consider “neutral. ” Trump has pushed for rates near 1 percent, arguing that a neutral stance makes it harder to justify cuts when inflation is above target. Portfolio manager Priya Misra says the Fed needs a clear emergency signal from the labor market to move decisively. Revisions to job data have become larger than usual, raising questions about the reliability of monthly surveys. The Bureau of Labor Statistics (BLS) has been accused of overstating employment gains, prompting President Trump to fire the agency’s head last summer. Experts say revisions are driven by changes in how new businesses and closures are counted, not by political bias. The BLS plans to adjust its models to better reflect recent labor market shifts, which may reduce future revisions but could increase monthly volatility. Private employers’ payroll data from ADP also undergoes yearly adjustments. Last week, ADP cut its 2025 job growth estimate by more than a third after aligning with BLS figures. Analysts expect the forthcoming federal report to show sluggish hiring, matching other unofficial gauges that note low job postings and rising layoffs. For Trump, a weak jobs report could hurt his political narrative. His aides are already preparing counterarguments, arguing that January’s numbers do not reflect the full labor market picture. Trade adviser Peter Navarro said hiring figures below 100 k should not alarm policymakers, citing immigration cuts that reduce the number of jobs needed for equilibrium. Kevin Hassett echoed this view on CNBC, noting that lower population growth and higher productivity—thanks to AI—could explain the softer numbers. Overall, while headline unemployment remains steady and inflation shows signs of easing, underlying data suggests a more cautious outlook for job growth in the coming months.