Economic Report

Jobs report forecast to show 185,000 workers hired. But beware the January effect.

U.S. unemployment rate expected to stay below 4%

People working in a donut shop in New York City. The U.S. economy is still producing lots of new jobs.

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A steadily growing U.S. economy likely generated close to 200,000 new jobs in the first month of the new year, Wall Street pros say, but the labor market has cooled off a bit since last year.

Here’s what to watch in the January employment report due Friday morning.

The forecast

Economists polled by The Wall Street Journal predict 185,000 new jobs were created last month, but estimates range far and wide.

There’s plenty of uncertainty, and it’s probably best not to put too much stock into the number of jobs supposedly created in January, Wall Street DJIA economists say. 

How come?

The government will make annual adjustments to its process for determining how many jobs are created each month. Sometimes these new seasonal adjustments can sharply inflate — or deflate — the estimate of new jobs in January.

January effect

The economy always loses jobs in January before the government’s seasonal adjustment process kicks in. Employment typically declines by 2.5 million to 3 million as holiday temps are let go.

If fewer jobs are lost than expected, the seasonal adjustments tend to produce a higher “increase” in January employment than markets expect. 

If more jobs are lost than is normally the case, the headline January jobs number tends to be weak.

Businesses appear to have hired fewer workers ahead of the holiday season than is typically the case, suggesting they laid off fewer temps in January.

If that’s the case, the January jobs report could show a big increase in employment.

‘Real’ jobs number

So what’s the real jobs number?

The economy added an average of 165,000 jobs a month in the fourth quarter of 2023, slowing from 221,000 in the third quarter and 312,000 in the first three months of last year.

The U.S. is likely to add fewer than 200,000 new jobs a month in 2024.

That’s still pretty strong, though. 

Economists say the U.S. only needs to create about 75,000 to 100,000 jobs a month to soak up all the new people entering the labor force in search of work.

The Federal Reserve wants to see hiring slow further to ease the upward pressure on worker pay spawned by a tight labor market.

Unemployment rate

The share of jobless workers is forecast to inch up to 3.8% in January from 3.7% in the prior month.

Yet the unemployment rate is unlikely to rise much, if at all, if the economy keeps producing more than 150,000 new jobs a month. 

The only way the rate would rise much is if a large number of people not working now suddenly started looking for a job.

If they do, it’s because they think the economy is strong and wages are pretty good.

Slower wage growth

The Fed won’t mind higher-than-expected job creation or a low unemployment rate as long as the spike in wages over the past few years continues to unwind. Smaller increases in pay help to keep inflation under wraps.

Average hourly pay is forecast to rise 0.3% in January, a touch above what the Fed would like to see.

The increase in wages over the past year, meanwhile, is likely to hold steady at around 4.1%.

While the Fed would like to wage growth slow to 3%, a more reliable gauge of what businesses pay workers shows that the annual increase in compensation is returning closer to pre-pandemic norms.