Job growth posted a surprisingly strong increase in January, once again demonstrating that the US labor market is strong and poised to support broader economic growth.
The Labor Department's Bureau of Labor Statistics reported Friday that nonfarm payrolls rose by 353,000 during the month, much better than the Dow Jones estimate of 185,000. The unemployment rate held steady at 3.7%, versus expectations of 3.8%.
Wage growth also showed strength, with average hourly earnings increasing by 0.6%, double the monthly estimate. On an annual basis, wages jumped 4.5%, well above expectations of 4.1%. The wage gains came amid a decline in average hours worked, to 34.1, or 0.2 hours fewer during the month.
Job growth was broad-based during the month, led by professional and business services with 74,000. Other significant contributors included health care (70,000), retail (45,000), government (36,000), social assistance (30,000), and manufacturing (23,000).
“This reaffirms that the labor market enters 2024 on solid ground,” said Daniel Chao, chief economist at Glassdoor. “The fact that job growth is so broadly spread across industries is a healthy sign. In today’s report, we were concerned about the extent to which jobs were concentrated in just three sectors – healthcare, education and government. While it is great to see that those sectors are driving job gains, There is no guarantee that it will be sufficient to support a healthy labor market.
The report also noted that December's job gains were much better than originally reported. The month posted a profit of 333,000, representing an upward revision of 117,000 from the initial estimate. November was also revised to 182,000, or 9,000 higher than the last estimate.
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While the report showed the resilience of the US economy, it may also raise questions about when the Federal Reserve will be able to lower interest rates.
“Make no mistake, this was a strong jobs report and will vindicate the latest stance by the Fed which has virtually ruled out a rate cut in March,” said George Mathieu, chief investment officer at Key Private Bank. “Furthermore, strong job gains combined with faster-than-expected wage gains may signal a further delay in 2024 interest rate cuts and should prompt some market participants to recalibrate their thinking.”
Futures markets turned around following the report, with traders now pricing in a better than 80% chance that the Fed will not cut interest rates at its March meeting, according to CME Group.
Stocks were mixed after the report. The Dow Jones Industrial Average fell at the open but the S&P 500 and Nasdaq were positive. Treasury yields rose.
The January jobs report comes as economists and policymakers closely monitor employment numbers for the trend in the larger economy. Some recent high-profile layoffs have raised questions about the sustainability of what has been a strong hiring trend.
A more comprehensive measure of unemployment that includes discouraged workers and those holding part-time jobs for economic reasons rose to 7.2%. The household survey, which measures the number of people already holding jobs, differed sharply from the establishment survey, showing a decline of 31,000 in the month. The labor force participation rate remained unchanged at 62.5%.
One important caveat in the report may be the difference between average hourly wages and hours worked. Retail trading saw a new historic low of 29.1 hours in data dating back to March 2006.
“This suggests that employers are choosing to reduce work hours rather than resort to layoffs for the time being,” the Conference Board said in its analysis of the report.
Broader layoff numbers, such as the Labor Department's weekly report on initial unemployment claims, show that companies are reluctant to let go of workers in such a tight labor market.
GDP growth also defied expectations.
The fourth quarter saw GDP increase at a strong annual pace of 3.3%, concluding a year in which the economy defied widespread expectations of a recession. The growth in 2023 came even as the Federal Reserve raised interest rates further as it sought to lower inflation.
The Federal Reserve Bank of Atlanta's GDP tracker is pointing to a 4.2% gain in the first quarter of 2024, albeit with limited data on where things are headed during the first three months of the year.
The dynamics of the economy, employment and inflation form a complex picture as the Fed seeks to ease monetary policy. Earlier this week, the Fed again held short-term borrowing costs steady and signaled that interest rate cuts may be in the future but not until inflation shows more signs of slowing.
Chairman Jerome Powell noted in his post-meeting news conference that the central bank does not have a “mandate for growth” and said central bankers remain concerned about the impact of high inflation on consumers, particularly those at the lower end of the income scale. .
Beyond the wage figures, recent data shows that inflation is moving in the right direction.
Core inflation as measured by personal consumption expenditures prices was just 2.9% in December on an annualized basis, while six- and three-month measures indicated the Fed was at or near its 2% target.
However, the Atlanta Fed's measure of “flat” inflation, which focuses on items such as housing, Medicare services and insurance costs, stood at 4.6% on a 12-month basis in December.
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