The U.S. economy added over half a million jobs in January, blowing expectations out of the water in the first month of the year — revealing that the labor market continues to remain strong despite the Federal Reserve’s aggressive monetary tightening in its fight to tame inflation.
The Labor Department reported Friday that 517,000 jobs were generated in January on a seasonally adjusted basis, posting the biggest last seen in July 2022. January’s numbers blew away economists’ consensus of 185,000 to nearly 200,000 jobs, almost double the increase from December’s revised 260,000 from 233,000 it was previously reported. The average job gain for the last three months now brings it to a total of 356,000.
The unemployment rate dipped to 3.4%, versus the estimate for 3.6%. That is the lowest jobless level since May 1969. Meanwhile, the government’s broader measure of unemployment which includes discouraged workers and those holding part-time jobs for economic reasons also edged higher to 6.6%, while the labor force participation rate ticked up to 62.4%, still well below pre-pandemic levels
Wage growth soften last month, despite the strong labor market gains reported. Average hourly earnings rose by 0.3% monthly, on par with the December figure. On an annual basis, wages climbed 4.4% in January, a slightly slower pace from 4.6% in December, but slightly higher than economists’ expectations.
Job gains were widespread across industries sectors, according to the Labor Department, led by the largest increases seen in leisure and hospitality, professional and business services, and health care. Employment also increased in government, partially reflecting the return of workers from a strike. Leisure and hospitality, one of the industries hit the hardest by the COVID pandemic, resumed its strong recovery, with employers adding 128,000 jobs in January. However, the leisure sector continues to remain at less than half a million jobs or 2.9% short of its February 2020 pre-pandemic levels.
Employment in professional and business services grew by 82,000 jobs, along with the healthcare industry registering continuous strong gains, with 58,000 jobs added in January. Fields in nursing and residential care facilities saw a bump of 17,400 jobs.
The information industry was the only sector reporting a decrease in payrolls in January, the second straight month of declines. In January, the sector that includes technology workers showed a loss of only 5,000 jobs. The number is a tiny blip compared to the string of well-publicized layoffs that have plastered headlines that same month with high-profile industries from Microsoft and Google reporting a combined 28,000 job cuts.
January’s shocking report also revisions to the whole 2022 job data, showing an even stronger burst of hiring than previously reported. According to the Labor Department, 4.6 million jobs were added, almost 200,000 more than initially reported and the second most ever recorded since 1939. Annual updates to payrolls in the 12 months that ended in March 2022 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.
However, it’s widely reported that seasonal adjustment issues notoriously plague January reports. There is a high likelihood that seasonal factors, which often make January jobs figures hard to read, helped trigger the surprising number. It is expected there will be more changes to come, possibly with numbers showing an opposite trend. The revisions released on Friday incorporate the more accurate unemployment insurance data only through the first three months of last year. Recent data indicates that the Labor Department’s survey has been overstating job growth during the second quarter of 2022, according to an analysis by economists at the Federal Reserve Bank of Philadelphia.
President Biden seized on gloating the unexpected report, claiming what he called “strikingly good news” is evidence that his economy is working and economists’ predictions of his economic policies causing an imminent recession are farfetched. Just days before he delivers his second State of the Union address, Biden is unabashedly taking credit for the report as he travels across the country to champion spending billions that many have to point to as the cause of inflation soaring in the two years of his presidency. At the same time, the president and Democrats are ignoring the “chorus of critics” to cherry-pick the good news as a way to galvanize voters just ahead of Biden’s expected announcement on his likely 2024 re-election bid.
For the majority of his presidency, Biden has largely focused on pointing to the jobs report as evidence that his economic agenda has rebuilt a shuttered economy caused by the pandemic.
“For the past two years, we’ve heard a chorus of critics write off my economic plan,” Biden said in a short, last-minute add to his schedule remark. “They said it’s just not possible to grow the economy from the bottom up and the middle out,” he said. “Today’s data makes crystal clear what I’ve always known in my gut: These critics and cynics are wrong.”
But when it comes to determining the economic strength, the jobs report is considered a lagging indicator as inflation continues to remain a sticky point and suggests a more mixed picture. It is also the most glaring political vulnerability for Biden when it comes to touting economic growth. Republicans and many economists on both sides of the aisle have pointed to the administration’s reckless spending spree by injecting too much money into the economy as the reason inflation has worsened. Yet despite the data showing inflation rising at a 40-year high under his presidency, Biden refuses to take any blame for causing it.
Fed Chair Jerome Powell is strongly committed to bringing inflation to the central bank’s target range of 2%. With the Consumer Price Index peaked in June 2022 at 9.1%, the aggressive rate hikes from the Fed helped caused inflation to steadily fallen, hitting a still-high of 6.5% in December. Fed officials have lifted rates from near zero just a year ago to now hitting a target range of between 4.5% and 4.75%, the highest level in decades.
The monstrous headline number is a nightmare for the federal reserve given their aggressive rate hikes have yet to pull back the jobs market to slow down the economy in its fight against inflation. The Federal Reserve is tracking incoming labor figures as it decides to weigh its next move on how high to hike interest rates and how long they should leave them elevated. January’s employment report is higher for the Fed’s comfort zone and could cause the Central Bank to get even tougher with rate hikes thus doing too much too quickly to cause a recession.
On Wednesday, the Federal Reserve raised rates again by a quarter of a percent, the eighth straight increase, but the smallest bump since March 2022. Powell noted during a press conference that the labor market continues to remain a sticky sour point for the Feds as it continues to remain out of balance. Reducing inflation, according to the Fed requires a period of below-trend growth and softening labor market conditions. Powell warned that more hikes are coming, declaring that the Fed’s “job is not fully done” in their fight to rein in inflation.
The strong January job numbers upended investors’ expectation of the Fed pivoting, with stocks tumbling in response to the data as many began penciling in another rate hike move in May or June that would bring the Fed’s funds rate to a target range of 5%-5.25%. Bond yields rallied, retracing some of this year’s decline. The 2-year Treasury note, which matches expectations of the Fed policy rose to 4.3% while the 10-year Treasury note, a benchmark for loans and mortgages jumped back to 3.5%.Economic NewsEconomyFederal ReserveInflationJerome PowellJobsJobs ReportLabor DepartmentPresident BidenTech IndustryUnemployment Rate
What do you think?