Hiring picked up sharply in January as employers added a booming 353,000 jobs, highlighting a labor market that continues to defy high interest rates and household financial strains.
The unemployment rate held steady at 3.7%, the Labor Department said Friday.
Economists surveyed by Bloomberg had estimated that 185,000 jobs were added last month.
The surprisingly strong showing was driven by big payroll increases in health care and professional services but was also boosted by some quirky factors linked to holiday hiring that may not persist in the coming months.
Still, the performance wasn’t a one-month blip. Job gains for November and December were revised up by a whopping 126,000, with the December tally upgraded to 333,000 from 216,000. The changes portray a stronger labor market in the fall than previously believed.
“The revision of last month’s numbers added to today’s report make clear the economy is breaking new ground,” says Jane Oates, president of WorkingNation, a nonprofit that raises awareness about the challenges facing U.S. workers and former head of the Labor Department’s employment and training division.
Are wages catching up to inflation?
Average hourly pay also rose sharply, climbing 19 cents to $34.55 and pushing up the yearly increase to 4.5% from an upwardly revised 4.3%. Since the spring of last year, pay increases have outpaced still-high inflation, giving consumers more purchasing power.
Is the Fed expected to cut rates?
The blockbuster job and wage gains could make the Federal Reserve warier about cutting interest rates anytime soon. The Fed tentatively plans to lower rates three times this year but said this week that a March cut is unlikely because officials want to ensure a pandemic-related inflation spike has been tamed for the long term.
“With blowout payrolls, a large upward revision, and a low unemployment rate, dreams of imminent Fed rate cuts are likely to be crushed by today’s report,” Jason Schenker, president of Prestige Economics.
He doesn’t expect the Fed to start reducing rates until the third quarter.
But other economists are still betting the central bank will act in May. Fed Chair Jerome Powell said this week that a strong economy and job market can coexist with easing inflation and would not discourage officials from cutting as long as price increases continue to slow.
Since pay gains feed into inflation, January’s rise in wage growth poses concerns. But the Fed will be focused mostly on whether inflation reports over the next few months show a continued slowdown, says Nationwide economist Kathy Bostjancic.
What sectors are adding the most jobs?
Last month, professional and business services led the job gains with 74,000. Health care added 70,000; retail, 45,000; social assistance, 30,000; and manufacturing, 23,000.
Federal, state and local governments added 36,000 jobs.
In recent months, industries that are less sensitive to rate increases and the economy’s ups and downs – such as government, health care, and social assistance – have accounted for the bulk of U.S. job growth lately. That pattern persisted to some extent last month but job gains were broader based on professional services and manufacturers hiring lots of workers.
How many hours a week do most Americans work?
One glaring weakness in the report: The average workweek fell to from 34.3 hours to 34.1 hours, the lowest since the depths of the pandemic in March 2020. It’s unusual for employers to be giving workers fewer hours at the same time they’re adding lots of employees.
At least a partial answer is that companies are still smarting from severe pandemic-induced labor shortages over the past two years and are reluctant to let workers go even if their sales are flagging, Bostjancic says. They even may be adding some workers as they eye a pickup in demand down the road.
Since businesses have a surplus of employees, they’re giving each fewer hours on average. That could signal slower hiring in the months ahead.
Yet economist Lydia Boussour of EY-Parthenon says unusually cold weather last month likely played a role in the reduced hours.
How does weather affect employment?
The January totals were expected to be skewed by some unusual crosscurrents. Cold, snowy weather in the Northeast and Midwest likely dampened employment in industries such as construction and restaurants, Goldman Sachs wrote in a research note. That seemed to play out at least partly, with construction adding a modest 11,000 jobs and restaurants and bars trimming a few thousand.
A further decline was likely because unseasonably warm weather boosted employment in December, setting the stage for a pullback as temperatures returned closer to normal last month, Goldman said.
At the same time, retailers, hotels and trucking companies brought on fewer holiday workers than usual late last year, prompting fewer layoffs in January and lifting employment on a seasonally adjusted basis. That likely swelled payrolls by about 100,000, Goldman figured, more than offsetting the weather-related hit.
What is the hiring projection for 2024?
The bigger picture is that consumer spending and job growth are likely to slow substantially this year as lower- and middle-income households cope with high interest rates, record credit card debt, still-elevated inflation and dwindling pandemic savings.
Moody’s Analytics expects the U.S. to add an average of 72,000 jobs a month, down from 255,000 last year and 399,000 in 2022, as a post-pandemic burst in pent-up spending fades further.
Will there be layoffs in 2024?
Big Tech companies such as Amazon, Microsoft and Google have announced thousands of layoffs recently and some economists continue to predict a mild recession in 2024.
But most forecasters believe the nation will avoid a downturn. The same tech giants that are cutting workers in gaming and streaming are beefing up staffs for artificial intelligence and machine learning, says Ger Doyle, senior vice president of Experis, the tech hiring arm of staffing firm ManpowerGroup.
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