U.S. hiring cools in January; outlook for California dimmed by looming cuts in government and aid

WASHINGTON — U.S. job growth slowed at the start of the year, the government said Friday, as business services, manufacturing and other major industries held back on adding new jobs amid increased uncertainty about the economy.

The Los Angeles-area wildfires, which began Jan. 7, didn’t have a material effect on the nation’s employment numbers, the Bureau of Labor Statistics noted. But analysts said it remains to be seen what the fires’ impact on jobs will be for California and beyond. Thousands of Californians affected by the fires already have filed for unemployment benefits. The state’s jobs and unemployment numbers for January won’t be reported until next month.

While the national jobs report Friday was modestly below expectations, a separate national survey on consumer confidence was more concerning: It showed many people foresee increasingly higher prices in the months ahead. That, coupled with strong wage gains last month, sent stocks falling.

Investors and economists worry about tariffs and other Trump administration policies reigniting inflation — which would not only put the kibosh on near-term interest rate cuts but could force the Federal Reserve to reverse course and raise rates.

“Uncertainty makes it more likely that something could tip us into recession,” said Erica Groshen, an economist and former commissioner of the Bureau of Labor Statistics, which produces the monthly jobs report. “A lot of it is going to depend on confidence,” she added. “Are we going to have a price shock?”

The jobs report Friday showed that the nation’s unemployment rate ticked back down to just 4%, from 4.1% in December. At the same time, hourly wages rose a strong 0.5% in January from the prior month, for an annual growth rate of 4.1%.

Thus far, experts believe that labor costs haven’t spurred inflation, but with the unemployment rate already near historical lows and U.S. birth rates down, plans for mass deportations of unauthorized foreign workers, combined with higher tariffs, would likely add to overall inflationary pressures.

The national jobs report included significant upward revisions to the adult and workforce populations, taking into account the large growth in foreign migration in recent years, although Southwest border crossings have slowed sharply since last summer.

The new population estimates “show clearly that the surge in net immigration was a key factor in boosting U.S. labor supply in the last couple of years, in turn alleviating the labor shortages that were so prevalent in 2022,” said Brian Coulton, chief economist at Fitch Ratings.

The consumer sentiment report, from the University of Michigan, said people’s expectations for inflation over the next 12 months jumped from 3.3% earlier this year to 4.3% in February, the highest since November 2023.

The Fed’s effort to curb inflation further to its target 2% level has stalled in recent months. Consumer price inflation in the fourth quarter was between 2.6% and 2.9%.

Higher inflation and weaker consumer confidence would weigh on spending and new job creation. Last month, nearly all of the 143,000 net gain in payrolls came from healthcare, retail and government. That’s still healthy growth, but lower than the 170,000 economists were expecting.

And both government and healthcare employers could soon feel the effects of the Trump administration’s moves to pare federal payrolls and public aid that is critical for health services and social assistance.

That presents challenges especially for states like California, said Michael Bernick, an employment lawyer for Duane Morris in San Francisco. “California has lived off of heightened government spending in the post-pandemic period, but that is coming to an end,” said Bernick, the former director of the state’s Employment Development Department.

“Also, California’s main sectors of job growth — healthcare and government — have been targeted for reform and employment reductions by the new administration.”

On the positive side, rebuilding after the wildfires should give a lift to the L.A.-area economy, although it may take some time for employment to bounce up after the disruption of normal economic activity and work caused by the disaster, which destroyed more than 16,000 structures, most of them houses.

California’s EDD reported that as of Tuesday, workers seeking relief had filed about 5,300 unemployment benefit claims linked to the fires. That’s about 10% of the total new claims filed statewide in the most recent week. Data on federal Disaster Unemployment Assistance for self-employed people weren’t yet available.

For months now, California has been lagging behind the nation in job growth, with hiring weakness in major sectors such as tech and entertainment. The state’s unemployment rate for December was 5.5%, the second highest in the country behind Nevada, which was 5.7%. Los Angeles County’s jobless rate was 6% at the end of last year.

The EDD said the statewide jobs report for January won’t be released until March 17, later than usual for most months, due to a yearly review of the statistics using a wider array of information.

Friday’s national jobs report also showed that the U.S. added about 600,000 fewer jobs last year than previously reported. The adjusted figures show that the U.S. economy created, on average, 166,000 new jobs a month last year, down from 216,000 in 2023.

The rates of new job openings and people quitting their jobs, both of which jumped in 2021 and 2022, have since fallen below pre-pandemic levels. And the labor market outlook has become more cloudy as the new administration has promised to implement a range of policies, some positive and some negative for growth. These include increasing tariffs, cutting taxes and government regulations, and making mass deportations of immigrants who are in the country illegally.

“The job market still looks solid — and the largest threats to its steadiness are Trump’s plans to deport immigrants and raise tariffs,” said Harry Holzer, a labor economist and public policy professor at Georgetown University.