Labor market stuns with 517,000 new jobs
(CN) — The U.S. economy added a remarkable 517,000 jobs last month as the unemployment rate dropped to 3.4%, the lowest level since 1969.
It may be good news for job seekers, but the January jobs report released Friday morning by the Labor Department could cause headaches at the Federal Reserve, which has been desperately trying to cool down the economy in the face of high inflation. The report comes just two days after the central bank raised its key interest rate for the eighth time in the last year.
Andrew Hunter, senior U.S. economist at Capital Economics, said one bright spot in the report for the Fed is that wage growth seems to be slowing. Average hourly earnings were up 0.3% from the previous month and 4.4% over the year, down from the 4.8% annual increase in December.
“As a result, although the report at face value supports the Fed’s plans to hike interest rates twice more over the next few months, it underlines our belief that core inflation can continue to fall sharply even without a significant weakening in labour market conditions,” Hunter wrote.
Economists with Dow Jones predicted 187,000 jobs to be added in January. Employers outdid that estimate by more than double and added the most jobs since last summer, far surpassing the upwardly revised 260,000 jobs added in December.
The leisure and hospital sector, hit hardest by the Covid-19 lockdowns of 2020, continued to lead the way in hiring. It added 128,000 positions in January, including 99,000 at restaurants and bars and 15,000 in lodging. Despite the strong gains – including an average of 89,000 new jobs a month last year – the industry is still down 495,000 positions compared to its pre-pandemic level in February 2020.
There were 82,000 more jobs in professional and business services last month, and 58,000 more in health care. The retail sector added 30,000 positions, while construction gained 25,000 and transportation and warehousing added 23,000.
Government payrolls grew by a robust 74,000, which includes 35,000 in state government education after university workers ended their strike.
Nick Bunker, economic research director for North America at career site Indeed, said even aside from January’s “eyepopping” job gains, the labor market has shown sustained strength.
“Employers have added an average of 356,000 jobs a month over the past three months, and the unemployment rate dropped to a level not seen since before Neil Armstrong stepped on the moon,” he wrote. “All this is happening as wage growth drifts down toward a pace that would have been celebrated before the pandemic.”
Bunker said the report will add to the debate over how the Federal Reserve should think about the connection between inflation and the jobs market.
“If the central bank thinks that the low unemployment rate will necessarily push up wage growth and inflation moving forward, this strong report may darken the economic outlook,” he said. “But if instead, Chair Powell and colleagues are heartened by tempering wage growth, then the odds that the economy can avoid a recession increase.”
Hunter also suggested a recession is not certain this year.
“The robust 517,000 gain in non-farm payrolls in January means that, despite most leading indicators of recession flashing red, the economy is clearly not as close to recession as we had suspected,” he said. “Nevertheless, we strongly doubt that this marks the start of a renewed acceleration and, in any case, the good news for the Fed is that wage growth appears to be cooling anyway.”
Taking a victory lap Friday morning, President Joe Biden called the report “strikingly good news” in remarks from the White House. He noted that 12 million jobs have been added since he took office in January 2021.
“Put simply, I would argue the Biden economic plan is working,” the president said.