Job growth was unexpectedly strong in January, another sign that the U.S. labor market is solid and ready to support broader economic growth.
non-farm employment data The U.S. Department of Labor’s Bureau of Labor Statistics reported on Friday that 353,000 jobs were added this month, far better than the 185,000 increase expected by Dow Jones. The unemployment rate remained at 3.7%, above expectations of 3.8%.
Wage growth was also strong, with average hourly earnings rising 0.6%, double the monthly forecast. Wages increased by 4.5% annually, much higher than the 4.1% expected. While wages increased, average working hours fell to 34.1 hours, a decrease of 0.2 hours.
Job gains were broad-based this month, led by professional and business services employment growth of 74,000. Other significant contributors include health care (70,000), retail (45,000), government (36,000), social assistance (30,000) and manufacturing (23,000).
“This is yet another confirmation that the job market is on solid footing heading into 2024,” said Daniel Zhao, chief economist at Glassdoor. “It’s a healthy sign that job growth is so widespread across industries. In today’s report, we’re concerned that employment is actually There is a concentration in just three industries – healthcare, education and government. While it is good to see these industries driving job growth, there is no guarantee it will be enough to support the health labor market.”
The report also noted that job growth in December was much better than initially reported. There were 333,000 new jobs this month, an increase of 117,000 from the initial estimate. The number for November was also revised upward to 182,000, 9,000 higher than the previous estimate.
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While the report demonstrates the resilience of the U.S. economy, it may also raise questions about how soon the Federal Reserve can cut interest rates.
“There’s no doubt this is a blowout jobs report and will vindicate the Fed’s recent stance, which effectively ruled out a rate cut in March,” said George Mateyo, chief investment officer at Key Private Bank. “Additionally, strong job growth coupled with faster-than-expected wage growth could mean a further delay in interest rate cuts in 2024 and should cause some market participants to recalibrate their thinking.”
The futures market changed following the release of the report, with traders now pricing in more than an 80% chance that the Fed will not cut interest rates at its March meeting, according to CME Group.
Stocks were mixed after the report was released. The Dow Jones Industrial Average opened lower, but the S&P 500 and Nasdaq both rose. Treasury yields soared.
January’s employment data comes as economists and policymakers closely watch the jobs data to understand where the overall economy is heading. A number of recent high-profile layoffs have raised questions about the durability of this strong hiring trend.
A more comprehensive measure of the unemployment rate, which includes discouraged workers and people working part-time for economic reasons, edged up to 7.2%. The household survey, which measures the number of people actually employed and differs significantly from the establishment survey, fell by 31,000 this month. The labor force participation rate remained unchanged at 62.5%.
One potentially important caveat in the report may be the difference between average hourly earnings and hours worked. Retail trade data hit a record low of 29.1 hours since March 2006.
“This suggests that employers are choosing to temporarily reduce working hours rather than resort to layoffs,” The Conference Board said in an analysis of the report.
Broader layoff data, such as the Labor Department’s weekly report on initial jobless claims, show companies are hesitant to lay off workers with such a tight labor market.
Gross domestic product growth also exceeded expectations.
Fourth-quarter GDP grew a solid 3.3% on an annual basis, ending a year in which recession was widely predicted. The growth in 2023 came despite the Federal Reserve raising interest rates further to reduce inflation.
The Atlanta Fed’s GDPNow tracker projects growth of 4.2% in the first quarter of 2024, although data on the first three months of the year is limited.
Economic, employment and inflation dynamics complicate the situation as the Fed seeks to ease monetary policy. Earlier this week, the Federal Reserve once again kept benchmark short-term borrowing costs stable and said it may cut interest rates earlier, but not until inflation shows signs of cooling further.
Chairman Powell said at a press conference after the meeting that the central bank does not have a “growth mandate” and said the central bank governor remains concerned about the impact of high inflation on consumers, especially low-income groups.
Beyond the wage data, recent data suggests inflation is moving in the right direction.
Core inflation, measured in personal consumption expenditures prices, was just 2.9% year-on-year in December, while both the six-month and three-month indicators showed the Fed was at or near its 2% target.
Nonetheless, the Federal Reserve Bank of Atlanta A measure of “sticky” inflationFocusing on items such as housing, health care services and insurance costs, the 12-month month-on-month growth rate in December was 4.6%.
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