LA fires suppress January payrolls

January 31, 2025

Payrolls are expected to rise by 60,000 in January, a small fraction of the 256,000 we saw in the initial report for January. Disruptions due to epic fires in Los Angeles are the primary reason for the weakness. We saw only 43,000 jobs created back in October, when large swaths of the South were shuttered due to Hurricanes Helene and Milton.

Power outages affected some 400,000 households along with other critical infrastructure, including Wi-Fi and cell access. Over 100,000 people were displaced due to damaged homes. Some will leave LA permanently.

Information, leisure and hospitality, amusement parks, museums, transportation and warehousing, and manufacturing could all be affected. Goods coming into LA ports had to be rerouted to get around evacuations and smoke. Air cargo was delayed, which snarled supply chains. This is the same time that production in the aerospace industry is still struggling to recover from strikes late last year.

Retail employment could also be hit. However, a later-than-usual surge in hiring for the holiday season limited the usual ramp up in December, which could limit the seasonal layoffs we usually see in January,

Healthcare and social assistance, professional and business services and finance are expected to post gains. Construction is expected to add only modestly, as a cold snap hit many southern states during the month.

State and local government hiring is expected to post strong if not spectacular gains. Hiring for both public education and noneducation has held up remarkably well despite a shortfall in revenues in fiscal 2024.

Average hourly earnings are expected to rise 0.3%, which translates to a 3.8% increase from a year ago. That is slightly cooler than the 3.9% of December but still outpacing inflation. Average weekly hours are expected to hold at 34.3, which will help buoy weekly earnings.

The unemployment rate is expected to hold at 4.1%, with participation in the labor market waning in response to the fires. The fires likely pushed women with small children out of the labor market, at least temporarily. We saw a similar phenomenon in October when hurricanes uprooted households. We will also see a spike in those unable to work due to inclement weather, although that is usually due to snowstorms in January.