Job Growth in January Shows Stable, Balanced Growth, But Threat of Tariffs and Mass Deporations Could Upend Economy

Bernard E. Anderson, Ph D
Senior Economic Adviser, National Urban League, and
Whitney M. Young, Jr. Professor emeritus, The Wharton School, University of Pennsylvania

January’s Jobs Report showing 143,000 new jobs shows a strong labor market moving forward in a stable, balanced growing economy.

Employment grew for both Black and White workers, but Black unemployment rose slightly while White unemployment remained little changed. As a result, the Black/White unemployment differential edged up to 1.77, still below the previously persistent 2:1 ratio.  Average hourly wages grew 0.5 percent to $ 35.87.

Few industries showed notable employment growth: health care + 44 thousand, retail trade, +34 thousand,  and  social assistance + 22 thousand.  Employment was little changed in other major industries, either declining or increasing slightly. There was little change in the number of long-term unemployed or discouraged workers.

But there is uncertainty regarding the duration of these conditions given the Trump administration’s threat of tariffs and mass deportation of undocumented workers. Those policy actions would exacerbate inflation and generate labor market turmoil. 

On the other hand,  taken alone, the Jobs Report should give the Federal Reserve little reason to lower interest rates at its next meeting.

The rate of inflation declined significantly in 2024 but slowed less last year.  Core CPI, which excludes food and energy, remained unchanged at 2.8 percent in December, measurably higher than the Federal Reserve’s target of 2.0 percent.

The U.S. economy remained strong through 2024 with solid growth in economic activity and a labor market near full employment.  

GDP rose more slowly in the fourth quarter reflecting a large drop in inventory investment.  Private domestic final purchases, a major item in aggregate demand and personal consumption, rose strongly in the fourth quarter.  Payroll employment gains were strong in December, averaging 170 thousand per month in Q4.

The unemployment rate edged down to 4.1 percent, remaining near the level most economists regard as full employment.  The labor market showed less tightness reflecting weaker hiring while layoffs remained low.  There are still more available jobs than available workers, but the gap has narrowed.  Wage growth, settled at 4.1 percent per year, remains somewhat above the rate consistent with a steady decline in inflation.

On this path, inflation should slow further this year.  But there are risks as the labor market remains near full employment.  A major risk is the Trump administration’s plan to impose tariffs on major trading partners : 10 percent on Mexico and, Canada, and 25 percent on. China.  The administration also initiated major action to deport undocumented workers, an action that will undoubtedly reduce labor supply in agriculture, reducing the supply and generating an increase in the price of fresh fruits and vegetables.

 Tariffs are a tax on imports amounting to at least $ 625 on U S households. Tariffs also shrink output; consumers respond by switching to alternative products that don’t face tariffs.  Trading partners retaliate by placing tariffs on U S exports, especially agricultural products.  The decline in farm family income generates federal subsidies for farmers, increasing federal spending  and worsening the federal debt.

After talks with the President of Mexico and the Prime Minister of Canada, President Trump announced a thirty-day delay on the imposition of tariffs as the two countries make adjustments in policies that will address immigration and the entry of unlawful drugs into the U.S.

This chaos creates uncertainty about the path of economic activity in the immediate months ahead - - - uncertainty that will exacerbate the Federal Reserve’s task in reducing inflation.  The Fed is required to set monetary policy aimed at achieving price stability and maximum employment, the dual mandate.  To achieve that goal, it is helpful to reconcile monetary and fiscal policy, a process that will be very difficult  with the current leadership in the White House and Congress.