With nonfarm payrolls reporting their largest growth since July 2022, the employment picture got off to an astonishingly good start in 2023.
According to Labor Department data released on Friday, nonfarm payrolls climbed by 517,000 in January, exceeding both the Dow Jones estimate of 187,000 and the gain of 260,000 in December.
The Mastercard Economics Institute’s top U.S. economist, Michelle Meyer, called the report “phenomenal.” This raises the question of how we’re able to experience that degree of job growth despite other economic tremors. In actuality, it demonstrates that there is still a sizable unmet need for labor, and businesses have had a lot of difficulties properly staffing their workforces.
Compared to the estimated 3.6%, the jobless rate dropped to 3.4%. Since May 1969, that is the lowest level of unemployment. To 62.4%, the labor force participation rate increased little.
An additional measure of unemployment that takes into account disenchanted workers and people who hold part-time jobs out of necessity increased to 6.6%. The Labor Department’s household survey, which it uses to calculate the jobless rate, revealed an even greater increase of 894,000.
According to Julia Pollak, chief economist at ZipRecruiter, “Today’s jobs news is almost too wonderful to be true.” “Lowering inflation combined with falling unemployment is the stuff of economics fiction,” the author writes. “Like $20 notes on the pavement and free lunches.”
However, after the report, markets declined, albeit the major averages were mixed about lunchtime.
The enormous beat against the estimate was made possible by growth in a wide range of industries.
Leisure and hospitality added the most employment overall with 128,000. Professional and business services (82,000), government (74,000), and health care were other big gainers (58,000). Construction added 25,000 and retail increased by $30,000.
Additionally, wages showed strong rises for the month. Average hourly wages rose by 0.3%, in line with predictions, and 4.4% from a year earlier, above expectations by 0.1 percentage points but falling short of December’s gain of 4.6%.
Blacks’ unemployment rate decreased to 5.4%, while women’s unemployment was 3.1%.
It’s difficult to find any flaws in this analysis, according to Dan North, the senior economist at Allianz Trade North America.
Despite the Federal Reserve’s efforts to slow the economy and lower inflation from its highest point since the early 1980s, there has been a rise in job creation. Since March 2022, the Fed has increased its benchmark interest rate eight times.
The Fed on Wednesday omitted prior phrasing stating gains have been “strong” and instead highlighted that the “unemployment rate has remained low” in its most recent review of the jobs landscape.
In contrast, Chairman Jerome Powell stated during the news conference held following the meeting that the labor market “remains extraordinarily tight” and “out of balance.” About 11 million jobs were available as of December, or just about two for every worker who was available.
According to Daniel Zhao, head economist for employment review website Glassdoor, “Today’s news is an echo of 2022’s surprisingly healthy job market, pushing back recession worries.” The labor market is retaliating so far against the Fed’s attempts to chill it down in the new year.
Markets anticipate that the Federal Reserve will begin decreasing interest rates before the end of 2023, despite the fact that officials have stated they intend to keep rates high for as long as it takes to reduce inflation.
According to CME Group data, traders upped their bets that the Fed will approve a quarter percentage point interest rate hike at its meeting in March, with the probability increasing to 94.5%. They now anticipate another hike in May or June, which would put the benchmark funds rate of the central bank in the desired range of 5%-5.25%.
The Fed is attempting to orchestrate a “soft landing” for an economy under pressure from global concerns that hindered growth in 2022 as well as inflation.
The labor market’s resiliency may lead some economists to reevaluate their expectations for at least a modest recession this year.