After several months of cooling, the economy added far more jobs than economists anticipated. The unemployment rate fell to its lowest level since 1969.
Here’s what we know:
After several months of cooling, the economy added far more jobs than economists anticipated. The unemployment rate fell to its lowest level since 1969.
- U.S. employers added 517,000 jobs in January.
- Strong hiring hints at more work ahead for the Fed, but wages cool.
- Leisure and hospitality employers led the outsized January gains.
- January’s job growth is a boost for Biden.
- Markets flinch at hot jobs numbers.
- Revisions show even bigger job gains in 2021 and 2022 than previously reported.
Data is seasonally adjusted.Source: Bureau of Labor Statistics
Pace of U.S. Hiring Surges Unexpectedly
The American labor market unleashed a burst of hiring in January, producing another wave of robust job growth even as interest rates continue to rise.
Employers added 517,000 jobs on a seasonally adjusted basis, the Labor Department said on Friday, an increase from 260,000 in December. Underscoring the labor market’s extraordinary vibrancy was the unemployment rate, which fell to 3.4 percent, the lowest since 1969.
Even as businesses across the country hired with unexpected zeal, wage growth slowed slightly to 0.3 percent compared with December, an indication that some of the pressure to lure employees with pay raises may be easing.
Still, the hefty hiring figures defied expectations and underscored the challenges facing the Federal Reserve, which is trying to cool the labor market in its effort to tame rapid inflation. By raising interest rates — on Wednesday, Fed officials did so for the eighth time in a year — policymakers hope to force businesses to pull back on their spending, including hiring.
Yet the labor market has remained extraordinarily tight. In addition to the report on Friday, the government released data this week showing that the number of posted jobs per available unemployed worker — a measure that policymakers have been watching closely — rose again in December. And despite a cavalcade of layoffs in the technology sector, the overall number of pink slips has stayed extremely low.
“So much for moderation,” said Beth Ann Bovino, the chief U.S. economist at S&P Global Ratings. “We certainly didn’t see it in this report.”
The job growth was broad, including in some industries that economists had expected to show signs of slowing. Employers in leisure and hospitality, including restaurants and bars, brought on a bevy of workers.
The labor force participation rate was barely changed at 62.4 percent. Fed officials have been hoping to see an increase in the ranks of those available to work, which could alleviate the tightness in the labor market that is driving up wages and contributing to inflation.
Participation in the work force is still well below prepandemic levels
Share of people who are in the labor force (employed, unemployed but looking for work or on temporary layoff)
The information sector lost 5,000 jobs, a relative blip despite headline-grabbing news of layoffs at technology giants such as Microsoft and Google.
At the same time, some measures suggest that higher interest rates appear to be slowing other parts of the economy. Transactions in the housing market, which is particularly sensitive to rate increases, plummeted last year as relatively high mortgage rates made purchases too expensive for many would-be homeowners. Consumer spending fell at the end of last year, a sign that Americans were becoming more cautious in the face of rising prices, dwindling savings and fears of recession.
Many forecasters expect the labor market to also slow this year as the Fed’s rate moves filter through the economy.
— Sydney Ember
Strong hiring hints at more work ahead for the Fed, but wages cool.
Federal Reserve officials have said that they are looking for the labor market to cool as they assess how much more they need to do to slow the economy, and the job report on Friday suggested that policymakers may still have a ways to go.
Employers hired ravenously in January, the jobless rate dipped to a level not seen since 1969, and the average workweek ticked up — all signs that demand for labor is booming.
At the same time, though, wage growth continued to moderate. Average hourly earnings climbed by 4.4 percent over the year, more than forecast in a Bloomberg survey of economists but less than 4.8 percent in December. Pay growth has been decelerating for months, though it remains faster than is typical and is still notably quicker than the pace that Fed officials have at times suggested would be consistent with their 2 percent inflation goal.
Wage growth is slowing along with inflation
Year-over-year percentage change in earnings vs. inflation
Data is seasonally adjusted. Source: Bureau of Labor Statistics By Ella Koeze
Fed officials raised interest rates by a quarter-point this week, and as Wall Street is now waiting to see how high officials will ultimately push borrowing costs and how long they will stay elevated. Taken as a whole, the jobs data offered something of a mixed bag for the Fed, which could choose to focus on either the slowing pay gains or the rapid hiring and falling unemployment rate.
But officials have recently stressed that labor demand remains too strong, so the fresh hiring figures offered little comfort on that front. And policymakers may question whether wage growth can continue to slow with unemployment so low and employers so eager to snap up workers.
“The risks are now that they might need to do more,” Kathy Bostjancic, Nationwide’s chief economist, wrote in a note following the release.
Central bankers usually cheer on workers when they get jobs and raises, but they are worried that today’s strong job market could stop inflation from cooling completely. When companies increase pay rapidly to compete for a limited pool of workers, they may charge more to cover their climbing labor bills. Beyond that, higher incomes could prompt consumers to spend more, keeping demand strong.
“The labor market continues to be out of balance,” Jerome H. Powell, the Fed chair, said earlier this week.
Mr. Powell said this week that the Fed would be watching economic data ahead of its next policy meetings, in March and May. And he underlined that if the labor market did not cool more, inflation could remain rapid in the services sector, in which labor is a major cost.
“My own view would be that you’re not going to have a — you know, a sustainable return to 2 percent inflation in that sector without a better balance in the labor market,” he said at his news conference. “And I don’t know what that will require in terms of increased unemployment.” – — Jeanna Smialek
(New York Times)
