Hiring rose sharply in January as employers added 353,000 jobs, highlighting a labor market that continues to defy high interest rates and household financial pressures.
The unemployment rate remained steady at 3.7%, the Labor Department said on Friday.
Economists polled by Bloomberg estimated that 185,000 jobs were added last month.
The surprisingly strong showing was driven by big wage increases in health care and professional services, but also tempered by some quirky factors tied to holiday hiring, which may not continue in the coming months.
However, performance is not a one-month gap. Job gains for November and December were revised up by 126,000, lifting the December figure to 333,000 from 216,000. The changes depict a stronger labor market in the fall than previously believed.
“The revision to last month’s numbers included in today’s report makes it clear—the economy is breaking new ground,” said Jane Oates, president and training arm of WorkingNation, a nonprofit that raises awareness of the challenges facing American workers and the former head of the Labor Department.
Are wages catching up with inflation?
Average hourly wages also rose sharply, rising 19 cents to $34.55 and posting an annual increase of 4.3% to 4.5%. Since spring of last year, wage increases have still outpaced high inflation, giving consumers more purchasing power.
Is the central bank expected to cut rates?
Blockbuster job and wage gains have the Federal Reserve wary of cutting interest rates anytime soon. The central bank plans to cut rates three times this year, but said this week that a March cut is unlikely as officials want to ensure pandemic-related inflation is contained over the long term.
“Flooding wages, a large upward revision and low unemployment rate dreams of immediate Fed rate cuts will be crushed by today’s report,” said Jason Schenker, president of Prestige Economics.
He doesn’t expect the Fed to start cutting rates until the third quarter.
But other economists are still betting the Fed will act in May. Fed Chairman Jerome Powell said this week that a strong economy and job market could coexist with easing inflation and that he would not discourage officials from cutting as long as price increases continue to slow.
The pick-up in January wage growth is a concern as wage gains feed into inflation. But the Fed will focus on whether inflation reports continue to show a slowdown in the next few months, according to National Economist Cathy Postjanczyk.
Which sectors add the most jobs?
Last month, professional and business services led job gains with 74,000. Health care added 70,000; retail sales, 45,000; Social Assistance, 30,000; and manufacturing, 23,000.
Federal, state and local governments added 36,000 jobs.
In recent months, rate increases and ups and downs in the economy — industries less sensitive to government, health care and social assistance — have accounted for much of recent U.S. job growth. That pattern continued somewhat last month, but job gains were broad based on professional services and manufacturing hiring more workers.
How many hours a week do most Americans work?
One glaring weakness in the report: The average work week fell from 34.3 hours to 34.1 hours, far below the depth of the pandemic in March 2020. It is unusual for employers to offer workers fewer hours while adding more hours. of employees.
At least part of the answer is that companies are still smarting from severe COVID-induced labor shortages over the past two years and are reluctant to lay off workers even as their sales are flagging, Bostjancic says. They may be hiring some workers.
As businesses have surplus staff, they deliver on average every few hours. This could mean slower hiring in the coming months.
However, EY-Parthenon economist Lydia Bousseur said last month’s unusually cold weather may have played a part in the shorter hours.
How does weather affect employment?
January totals were expected to be skewed by some unusual cross currents. Cold, snowy weather in the Northeast and Midwest will reduce employment in industries such as construction and restaurants, Goldman Sachs wrote in a research note. Construction added 11,000 jobs and restaurants and bars shed a few thousand.
A further decline is likely as unseasonably warm weather in December boosted employment, setting the stage for a pullback as temperatures returned to normal last month, Goldman said.
At the same time, retailers, hotels and trucking companies brought in fewer holiday workers than usual late last year, prompting fewer layoffs in January and job growth on a seasonally adjusted basis. Goldman found that this may have boosted wages by about 100,000, more than offsetting the weather-related hit.
What is the hiring forecast for 2024?
The big picture is that consumer spending and job growth will slow significantly this year as low- and middle-income households grapple with higher interest rates, record credit card debt, still-elevated inflation and dwindling COVID savings.
Moody’s Analytics expects the U.S. to add an average of 72,000 jobs a month, up from 255,000 last year, and 399,000 in 2022, as the post-pandemic boom fades further.
Will it be decommissioned in 2024?
Big tech companies like Amazon, Microsoft and Google have recently announced thousands of layoffs, and some economists continue to predict a mild recession in 2024.
But most forecasters believe the country will avoid collapse. The same tech giants that are cutting workers in gaming and streaming are ramping up staff for artificial intelligence and machine learning, says Jer Doyle, senior vice president of Xperis, the technology recruiting arm of staffing firm Manpower Group.
