U.S. added 517,000 jobs in January, snapping five-month string of slowing employment growth
U.S. job growth accelerated at the start of the year as employers added a robust 517,000 jobs and pushed the unemployment rate to a 53-year low.
The unexpectedly strong hiring gains raise questions about whether the economy, which had been losing momentum over the past several months, is starting to pick up steam again. If so, that could prompt a more aggressive response by the Federal Reserve as it raises interest rates in an attempt to temper economic growth and bring down inflation.
January’s seasonally adjusted payroll gains were the largest since July 2022 and snapped a string of five straight months of slowing employment growth, the Labor Department said Friday. December job growth was also stronger than previously estimated, pushing the average job gains for the last three months to 356,000, well above the 2019 prepandemic average of 163,000.
The unemployment rate was 3.4% last month, its lowest level since May 1969. The average workweek rose to its highest level since March 2022, reversing declines in the fourth quarter.
Wage growth continued to soften, despite the strong job gains. Average hourly earnings grew 4.4% in January from a year earlier, down from a revised 4.8% in December. Annual revisions to employment and pay data suggest that wage growth has been cooling—but at a slower pace than previously thought.
Stocks closed lower on Friday after the jobs report beat economists’ expectations. Bond yields rose.
The Fed is likely on track to raise interest rates by another quarter-percentage point at its March meeting and to signal another increase is likely after that. But signs the labor market remains resilient could lead to more difficult debates at coming meetings over whether the central bank has done enough to neutralize inflation.
“This is just incredibly, surprisingly strong,” said Kathy Bostjancic, chief economist at Nationwide. “Not only are you hiring more workers but the workers you have overall are working more hours. It doesn’t really get stronger than that.”
Other recent figures point to a tight labor market. Employers had 11 million job openings at the end of December, or nearly double the number of unemployed people looking for work that month, the Labor Department said earlier this week. On Thursday, the department said first-time applications for unemployment benefits fell to 183,000 last week, the lowest level since April 2022.
The buoyant labor market in January contrasts against spending and growth figures that suggested a more mixed picture of U.S. economic health at the end of last year. Consumer spending, the main driver of economic growth, started to falter late last year. Manufacturing activity declined. The economy grew 1% in the fourth quarter of 2022 compared with a year earlier, down sharply from 2021.
For Fed officials, a reacceleration in job growth risks pushing up consumer spending and wages, putting renewed pressure on inflation, which has retreated from 40-year highs but remains elevated.
“The question is are we at a turning point where we’ve gotten used to better news on wage growth and news on inflation? Is that going to start moving in the other direction?” said Guy Berger, principal economist at LinkedIn.
Fed officials have been raising rates aggressively to keep the economy growing at a slower-than-average pace to cool inflation.
Consumer prices rose 6.5% in December from the previous year, down from 7.1% in November. The Labor Department will report January inflation data Feb. 14.
The Fed raised its benchmark rate by a quarter point this week to a range of between 4.5% and 4.75%, and Chair Jerome Powell said officials were considering “a couple of more rate hikes.”
The January jobs numbers raise the possibility that Fed officials will delay any deliberations about pausing increases, Ms. Bostjancic said. Investors have anticipated that more evidence of a slowdown in investment, spending and hiring could prompt the Fed to pause rate rises after another increase next month.
“It dampens expectations that they’re going to cut rates in the second half of the year,” she said.
Other data released Friday also point to a reacceleration in the economy. Activity in the services sector rebounded in January from a contraction in December, according to the Institute for Supply Management’s survey of purchasing managers.
New orders rose sharply with respondents pointing to easing supply-chain disruptions and an uptick in consumer outlooks on the economy.
Payrolls grew most strongly at services businesses, the Labor Department said. Leisure and hospitality industries added 128,000 workers in January, up from 64,000 in December. Retail, financial activities and education and health industries also posted strong job gains.
The information sector, a category that includes technology workers, lost 5,000 jobs in January, the second straight month of declines. Tech companies have led a string of high-profile layoff announcements as big corporations pull back amid economic uncertainty.
FedEx Corp., Rivian Automotive Inc. and Okta Inc., a business-software firm, all announced layoffs this past week.
Government employment also increased as some workers in California returned from a strike.
David Becker, founder of Indiana-based First Internet Bank, said he was still looking to expand his staff of around 200.
“I think we’re still looking at probably another 20 to 25 employees,” he said. “We’ve got good growth, loan demand is still strong across the country.”
Recruiters spoke to job seekers at a fair in South Carolina. Some recent economic figures point to a tight labor market.
Despite the well-publicized layoffs of technology workers at large companies, Mr. Becker said demand is still strong in Indianapolis.
“The industry is so tight for good, qualified personnel that they’re getting picked up almost overnight,” he said.
Friday’s report included annual updates to the 12 months ended in March 2022 that showed payrolls grew by 7.1 million over that span up from 6.4 million. That suggests the labor market was hotter in 2021 and into the first quarter of 2022 than previously thought.
A key consideration for Fed officials will be whether wage increases continue to cool. Earlier this week the Labor Department said growth in wages and benefits moderated in the fourth quarter.
Brittany Smith, founding partner of Wealth Partners Alliance, a wealth-management firm in Dallas, said her firm was still looking to hire. But she has seen a shift in the expectations of job applicants.
“A year ago, whenever we were interviewing, the applicants seemed to have the upper hand. They wanted the work-from-home flexibility, they wanted higher compensation, and they were less qualified,” she said. “Now I’m seeing lower compensation, similar qualifications, with less restrictions.”