Strengths and Weaknesses in Labor Sector

Labor sector reports indicated a mix of strengths and weaknesses, while annual home appreciation continues to show solid performance nationwide. Continue reading for these insights and more:

·      January Jobs Report: A Mixed Bag

·      Private Sector Job Growth Surpasses Projections

·      Job Openings Drop in December

·      Unemployment Trends Persist

·      Annual Home Appreciation Forecast Increased

January Jobs Report: A Mixed Bag

The Bureau of Labor Statistics (BLS) reported an addition of 143,000 jobs in January, below the forecast of 170,000. However, upward revisions for November and December added an extra 100,000 jobs, which bolstered the overall figures. The unemployment rate improved, decreasing from 4.1% to 4.0%.

What’s the bottom line? January's Jobs Report showed a combination of weaknesses, such as softer than expected job growth, and strengths, including a decline in unemployment and a 0.5% rise in average hourly earnings from December.

While this earnings increase was prominently covered by the media, it's important to note that it coincided with a reduction in hours worked. Consequently, average weekly earnings—reflective of actual take-home pay—only increased by 0.2% from December and 3.8% year-over-year, indicating a relatively modest improvement.

Private Sector Job Growth Surpasses Projections

Private sector job growth exceeded estimates in January, with employers creating 183,000 new positions versus the anticipated 150,000. December's job growth was also revised significantly higher, from 122,000 to 176,000 new jobs.

Medium-sized businesses (50-499 employees) added the largest number of new jobs (+92,000), but growth was seen across all company sizes. Large firms (500+ employees) added 69,000 jobs, while small businesses (<50 employees) added 39,000, which is an encouraging sign after recent trends.

What’s the bottom line? “We had a strong start to 2025 but it masked a dichotomy in the labor market,” said Nela Richardson, Chief Economist, ADP. “Consumer-facing industries drove hiring, while job growth was weaker in business services and production.”

Salary increases rose slightly for those remaining in their current roles (+4.7% from +4.6%), while they declined for those changing jobs (+6.8% from +6.9%). The narrowing gap between pay growth for job stayers and changers suggests a reduction in aggressive talent poaching among companies.

Job Openings Drop in December

Job openings declined sharply in December, falling from 8.156 million in November to 7.6 million, well below forecasts and near a four-year low. The drop was particularly pronounced in sectors like finance, professional services, healthcare and construction.

Both the hiring rate of 3.4% and quits rate of 2% approached their lowest levels in over a decade, excluding the COVID-19 period. The reduced hiring rate poses challenges for those on unemployment in securing new roles, while the low quits rate indicates diminished confidence in the job market.

What’s the bottom line? Job openings may be even fewer than reported. The rise in remote work has led to job listings being posted in multiple states, likely resulting in an overcount in the JOLTS data. In addition, the ratio of job openings to unemployed persons is at 1.1, a significant decrease from the peak of over 2 in 2022, which suggests some underlying weakness in the labor market.

Unemployment Trends Persist

While Initial Jobless Claims rose modestly by 11,000 to 219,000, the more concerning trend remains the sustained increase in Continuing Jobless Claims. These claims grew by 36,000 to 1.886 million and have exceeded 1.8 million each week since early June.

What’s the bottom line? New unemployment claims remain at historically low levels, but the persistent elevation in Continuing Jobless Claims suggests that job seekers are experiencing longer periods of unemployment.

Additionally, since many individuals receive benefits for only 26 weeks, the rise in Continuing Claims as these benefits expire also indicates weaknesses in the labor market and a slower hiring pace, aligning with the low hiring rate reported in the JOLTS data.

Annual Home Appreciation Forecast Increased

Home prices nationwide increased modestly in December: CoreLogic reported a 0.03% rise and a 3.4% annual increase, while ICE noted a 0.2% rise and the same 3.4% yearly growth.

CoreLogic expects a 0.2% decline in January and 4.1% appreciation for the year ahead, up from previous forecasts of 3.8% and 2.4%. This upward revision is noteworthy given CoreLogic’s typically conservative estimates.

What’s the bottom line? Recent home price index data shows that homeownership remains a strong way for Americans to build wealth. For instance, a $600,000 home appreciating by 4% in a year would yield a $24,000 gain, reflecting a solid investment return.

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