News & Insights

Asessing the January Jobs Report and its implications for Fed Rate Moves

The restatement of the jobs number for 2024 following a weaker-than-expected January 2025 report spooked analysts and policymakers. The downward adjustment of 610,000 jobs for December, and January’s relatively weak payrolls growth of only 143,000 jobs, led some to question the robustness of the labor market, adding yet more confusion to the Federal Reserve’s next moves on interest rates.

While the job market has clearly cooled, it remains healthy. January’s somewhat weak payrolls growth came with significant upward revisions to job growth in November and December on a month-over-month basis. The employment to population ratio, average time spent unemployed and permanent job losses have all improved after weakening in late 2024. Initial unemployment claims, which had been rising, are now declining (except for DC) while layoffs and continuing claims have stabilized, signaling resilient labor demand. The household survey, which had been contradicting the strong job growth reflected in the payroll survey, was revised up by 2.2 million employees, bringing the two measures into sync.

Overall, the Fed is likely to be reassured with the state of the labor market now compared with where we were late last year, when Fed governors took their eye off inflation amid a deteriorating job market. After cutting rates a full percentage point in the fourth quarter, the Fed may believe that labor is in a sweet spot, allowing a greater focus on inflation and worrying less about a contraction in employment. The tradeoff is a lower likelihood of further rate cuts.

Employment Population  Ratio – 25-54 yrs.

Source: Bloomberg

Total Number of Jobs (Payroll vs Household Survey)

Source: Bloomberg

The Developing Boom in U.S. Capital Expenditures

Though recent U.S. capital expenditures growth has been moderate, emerging trends point to a significant uptick in spending, driven by aggressive spending in artificial intelligence and strong foreign direct investment. This surge will further fuel U.S. productivity gains and support momentum in economic growth.

Regional Federal Reserve surveys show capex spend expectations holding steady, but the Business Roundtable’s CEO Economic Outlook indicates that CEOs are much more bullish in their expectations. Spending on additional development is concentrated in a handful of behemoth, well-funded technology companies. The application of these new technologies will likely trigger a broader capital spending cycle, in addition to the ongoing reshoring in many industries.

Investment in technology and data centers has surged over the past five years, with projections indicating astonishing growth well into 2026. Major tech firms like Meta, Google, Microsoft and Amazon are expected to double their capex spending driven by AI initiatives over the next few years. The recently announced Stargate project promises to invest $500 billion over the next four years into AI, with $100 billion of that being deployed immediately. Apple also just announced a plan to make a $500 billion investment in the U.S. over the next four years, with their spending encompassing manufacturing capacity, adding a boost to potential employment.

Though getting far less attention than AI, robotics is also likely to be part of the growth story, with U.S. deployment lagging much of the industrialized world. With a renewed emphasis on domestic manufacturing, and a perpetually tight labor market, investment in robotics looks poised to grow significantly.

Proposed tax reform, reinstating immediate depreciation for R&D expenditures, is another potential catalyst for increased spending. All capex is not created equal, with U.S. leadership in software and technology propitiously providing the biggest boosts to productivity, driving down unit labor costs and inflation.

American technological leadership, energy security and an improved regulatory climate are helping drive investment by companies as they expand U.S. domestic production and boost the onshoring trend. This is also contributing to large inflows of foreign direct investment, the final piece of the capex puzzle. The U.S. share of announced global cross-border investment projects has hit the highest level on record, with the U.S. share of global new FDI projects rising from 11.6% in 2023 to 14.3% in 2024, according to the Financial Times. FDI investment in U.S. greenfield projects is accelerating even as it declines in China, the UK, France, Germany and most other advanced economies.

CEO Expectations of Capital Spending

Source: Bloomberg

The Value of Announced Foreign Capital Expenditure Into the U.S.

Source: Financial Times analysis of fDi Markets

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