Job growth U.S. job growth significantly exceeded economists’ expectations in January, marking the latest unexpected development in a labour market that has consistently surpassed predictions of a notable slowdown.
According to the Labor Department’s Bureau of Labor Statistics, Nonfarm payrolls increased by 353,000 jobs last month. Data for December was revised higher to show 333,000 jobs added instead of 216,000 as previously reported. Economists polled by Reuters had forecast payrolls increasing 180,000
Estimates ranged from 120,000 to 290,000. Employment gains remain well above the roughly 100,000 jobs per month needed to keep up with growth in the working-age population. Nonetheless, labour market momentum has slowed from the robust pace in 2022 because of hefty interest rate hikes from the Federal Reserve. Still, job gains are more than sufficient to sustain the economy through strong consumer spending.
Average hourly earnings increased 0.6% last month after rising 0.4% in December. In the 12 months through January, wages increased 4.5% after advancing 4.3% in the prior month.
Annual wage growth is well above its pre-pandemic average and the 3.0% to 3.5% range that most policymakers view as consistent with the U.S. central bank’s 2% inflation target, supporting views that March is probably too early for the Fed to start cutting rates.
The unemployment rate was at 3.7% in January. January’s unemployment rate is not directly comparable to December’s 3.7% rate. New population estimates were incorporated into the household survey, from which the unemployment rate is derived.
The Fed left interest rates unchanged on Wednesday, but Chair Jerome Powell offered a sweeping endorsement of the economy’s strength, telling reporters that interest rates had peaked and would move lower in coming months.
Most economists are dismissive of recent high-profile layoffs including 12,000 job cuts announced by United Parcel Service this week, arguing that the focus should be on worker productivity, which has exceeded a 3% annualized growth pace for three straight quarters and cooling labor costs.
Employers are generally wary of sending workers home following difficulties finding labour during and after the COVID-19 pandemic. But some companies, which enjoyed a boom in business during the pandemic, are laying off workers as conditions return to normal.
Financial markets have dialled back their expectations of a rate cut in March and now expect the central bank to start lowering borrowing costs in May, according to CME Group’s FedWatch Tool. Since March 2022, the Fed has raised its policy rate by 525 basis points to the current 5.25% to 5.50% range.
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