On solid footing

The January employment report confirmed that the labor market ended 2024 on solid footing and continued to add more jobs in 2025. A total of 143,000 were added in January, while the tallies for November and December were revised higher by a total of 100,000, increasing the 2024 average monthly gain to 166,000. The unemployment rate eased from 4.1% to 4.0%; average hourly earning rose 0.5% in January and 4.1% over the last year. On a sector basis in January, job gains occurred in health care, retail trade and social assistance, while the amount of jobs added declined in mining, quarrying, and oil and gas extraction. Other major industries showed little change. 

In other January data, manufacturing surveys point to continued expansion, but seeds of caution came from the trade report. Some businesses apparently imported more goods as a potential hedge against higher costs from tariffs, leading to a more negative trade balance. In surveys of the services sectors, which cover a far larger part of the economy than does manufacturing, respondents mentioned concerns about potential tariff actions. The ISM services index softened in January, mostly from lower new orders, but prices paid and employment both improved. 

According to the University of Michigan survey, consumer sentiment in February fell for the second straight month across all political persuasions, age and wealth groups, to reach its lowest level since July 2024. Buying conditions for durable goods weakened, brought on by potential tariff impact, and expectations for personal finances sank. More problematic for the Federal Reserve was that respondents expect inflation to jump from 3.3% last month to 4.3% over the next year. Longer-term inflation expectations also ticked up from 3.2% to 3.3%. Consumers appear to be paying close attention to evolving policy developments. The US economic picture continues to evolve in 2025.