The US economy added 517,000 jobs in January—much more than the 187,000 gain economists were expecting—marking the biggest increase in nonfarm payrolls since July 2022.[0] The unemployment rate dropped to 3.4%, defying expectations for a rise to 3.6%, and reaching the lowest jobless level since May 1969. The percentage of the labor force that is actively participating increased to 62.4%.[1]
Average hourly earnings rose 0.3%, on par with the monthly increase in December, and 4.4% on an annual basis. The Federal Reserve has raised its benchmark interest rate eight times since March 2022, most recently with a 0.25% increase on Wednesday.[2]
Despite growing announcements of corporate layoffs last month, the unemployment rate fell to 3.4%. This points to a “soft landing” for an economy that is pressured by inflation and geopolitical factors that held back growth in 2022.[3]
An increase in the number of jobs in various industries contributed to the impressive performance that exceeded expectations.[4] Leisure and hospitality added 128,000 jobs in January, leading all sectors.[1] The other key industries that saw significant increases in employment were professional and business services (82,000 jobs), government (74,000 jobs), and health care (58,000 jobs).[5] Retail saw an increase of 30,000 and construction contributed an additional 25,000.[5] Job gains for November and December were also revised up by a total of 71,000 jobs.[6]
The surge in hiring comes despite signs of recession in parts of the economy and a series of high-profile layoffs in the tech and logistics sectors.[2] Average hourly wages rose 0.3% on the month, as expected, and annual wage growth continued to ease to 4.4%, also as expected.
The strong job growth and consistent wage growth should give Fed officials more confidence that inflation will continue coming down even if they bring their rate hikes to an end.[7] This could make it less likely that they’ll tighten too much and bring about the recession economists keep warning us about.[7]
It’s difficult to see how wage pressures can possibly soften sufficiently when jobs growth is as strong as this and it’s even more difficult to see the Fed stop raising rates and entertain ideas of rate cuts when there is such explosive economic news coming in.[8] Federal Reserve Chairman Jerome Powell noted the labor market “remains extremely tight” and is still “out of balance.”[9] By December, there were approximately 11 million job openings, which is almost two for every available worker.[4]
0. “Jim Cramer says strong January jobs report shows the economy can handle more rate hikes” CNBC, 4 Feb. 2023, https://www.cnbc.com/2023/02/03/jim-cramer-says-strong-january-jobs-report-shows-the-economy-can-handle-more-rate-hikes.html
1. “Jobs report: U.S. economy adds 517,000 jobs in January, unemployment rate falls to 3.4% as labor market stuns” Yahoo News, 3 Feb. 2023, https://news.yahoo.com/january-jobs-report-labor-market-economy-february-3-2023-125436675.html
2. “Jobs Report Shows Massive Hiring in January: What the Experts Are Saying” Kiplinger’s Personal Finance, 3 Feb. 2023, https://www.kiplinger.com/investing/jobs-report-shows-massive-hiring-in-january-what-the-experts-are-saying
3. “Now hiring: Despite layoff headlines, there are still plenty of jobs in this economy” NBC News, 3 Feb. 2023, https://www.nbcnews.com/business/economy/now-hiring-where-are-the-jobs-right-now-economy-rcna68783
4. “U.S. added 517,000 jobs in January as employers drove unexpected hiring surge” NBC News, 3 Feb. 2023, https://www.nbcnews.com/business/business-news/us-added-517000-jobs-january-much-better-187000-expected-rcna68977
5. “Jobs report shows increase of 517,000 in January, crushing estimates, as unemployment rate hit 53-year low” CNBC, 3 Feb. 2023, https://www.cnbc.com/2023/02/03/jobs-report-january-2023-.html
6. “U.S. employers added a whopping 517,000 jobs in January” NPR, 3 Feb. 2023, https://www.npr.org/2023/02/03/1153912911/jobs-labor-unemployment-wages-inflation-federal-reserve
7. “Jobs report: A recession sure doesn’t seem imminent.” Slate, 3 Feb. 2023, https://slate.com/business/2023/02/jobs-report-hiring-economy-federal-reserve-biden.html
8. “Jobs report: ‘Certainly a head scratcher,’ Wall Street analysts react” Yahoo News, 3 Feb. 2023, https://news.yahoo.com/jobs-report-certainly-a-head-scratcher-wall-street-analysts-react-193000504.html
9. “January’s ‘eye-popping’ jobs report is going to make the Fed’s inflation battle even harder” Fortune, 3 Feb. 2023, https://fortune.com/2023/02/03/jobs-reports-strong-fed-inflation-battle-harder-january/