The US economy added an astonishing 517,000 jobs in January, showing that the labor market isn’t ready to cool down just yet.
The unemployment rate fell to 3.4% from 3.5%, hitting a level not seen since May 1969 — two months before Neil Armstrong stepped on the moon — according to new data released Friday by the Bureau of Labor Statistics.
Economists were expecting 185,000 jobs would be added last month, based on consensus estimates on Refinitiv.
“With 517,000 new jobs added in January 2023 and the unemployment rate at 3.4%, this is a blockbuster report demonstrating that the labor market is more like a bullet train,” Becky Frankiewicz, president and chief commercial officer of ManpowerGroup, said Friday.
The shockingly strong monthly jobs gain — a number that several economists cautioned was influenced by seasonal factors and is subject to future revisions — bucks a trend of five consecutive months of moderating job growth during the latter half of 2022.
“The blowout 517,000 increase in total employment was almost certainly a function of seasonal noise and traditional churn in early-year job and wage environment and exaggerates what is already a robust trend in hiring,” Joe Brusuelas, principal and chief economist with RSM US, said in a statement.
Nonetheless the juggernaut of a report may cause complications for the Federal Reserve, which has been trying to tame high inflation with higher interest rates, said Seema Shah, chief global strategist of Principal Asset Management.
“Is [Fed Chair Jerome] Powell now wondering why he didn’t push back on the loosening in financial conditions?” Shah said in a statement. “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.”
“The market is going to go through a roller coaster ride as it tries to decide if this is good or bad news. For now, though, looks like the US economy is doing absolutely fine,” she said.
Silver lining for the Fed?
Still, the report also showed that wage growth moderated on an annual basis: Average hourly earnings fell 0.4 percentage points to 4.4% year over year. Monthly wage gains held steady at 0.3%.
“It’s quite remarkable to see such a realignment of the employment picture coinciding with an easing of wage pressure,” Mark Hamrick, senior economic analyst for Bankrate, said in an interview. “I think that might be part of this report that could help keep blood pressures down among Federal Reserve officials in the near term.”
Additionally, average weekly hours jumped to 34.7 hours from 34.3, and employment in temporary help services rebounded after two months of declines, indicating further demand for labor, noted Julia Pollak, chief economist at ZipRecruiter.
The report also showed an increase in the closely watched labor force participation rate to 62.4% from 62.3%. However, the increase in the share of people working or looking to work was a function of the BLS’ annual benchmark revisions to its household survey, one of two surveys that factor in to the monthly jobs report, noted PNC chief economist Gus Faucher.
Had it not been for the revisions, that number would have been unchanged at 62.3%, he added.
“The labor market is structurally tighter post-pandemic,” he said.
Every January, the BLS makes revisions on its employment data to reflect updated population estimates and other factors.
“On net, you saw stronger hiring in 2022 than what was initially reported,” said Sarah House, chief economist with Wells Fargo, told CNN.
Average monthly job growth in 2022 was revised up from an average of 375,000 per month to 401,000, she said.
Big Tech layoffs not a harbinger of big trouble ahead
Seasonality questions aside, other trends do align to support a strong January 2023 jobs report, Bankrate’s Hamrick said.
“When you have a number of things lining up, almost like a crime scene investigation, it tends to lend some credibility to that question of believability,” he said of the surprising half-a-million-plus job gains. “What are the things that are lining up? The continued remarkably low level of jobless claims, the rise in job openings, the increase in labor force participation.”
The gains were also widespread across industries, with job growth led by leisure and hospitality, professional and business services, and health care, according to the BLS report.
Industries that shed jobs last month included motor vehicles and parts (down 6,500 jobs), utilities (down 700 jobs) and information (down 5,000 jobs).
In recent months, mass layoff announcements — especially from Big Tech — had spurred concern that the cutbacks were a harbinger of broader cutbacks to come.
That doesn’t appear to be the case, considering jobless claims have remained historically low, job openings haven’t slipped and job gains remain strong, said Giacomo Santangelo, economist at Monster.
“The news is talking about big names laying off, but we don’t really hear what happens at small firms with less than 200 employees,” he said. “What we’re seeing at Monster is a lot of firms, a majority of firms, are looking to hire.”
The glut of available jobs — there are 1.9 open positions for every one job seeker — coupled with skills that are in high demand mean that workers are likely finding jobs quickly, he said. Additionally, those laid off by large technology firms likely received generous severance packages, so not all are filing for unemployment benefits.
Friday’s report showed that the median duration of unemployment was 9.1 weeks, just a smidge above the pre-pandemic level of 8.9 weeks in February 2020.