The unemployment rate in the United States fell to a more than 53-1/2-year low of 3.4% in January, indicating a consistently strong labor market and posing a potential challenge for Federal Reserve officials battling inflation.
According to the carefully watched employment report released by the Labor Department on Friday, job creation over the previous year was significantly greater than previously thought, indicating the economy was far from entering a recession. Even if pay growth slowed down even more in January, average hourly wages rose quicker in 2022 than anticipated.
The robust hiring, which took place despite layoffs in the technology industry as well as in interest rate-sensitive industries like housing and finance, dashed market hopes that the U.S. central bank was about to pause its cycle of tightening monetary policy.
Economists speculated that the Fed may raise its target interest rate above the recently anticipated 5.1% peak and maintain it there for some time in light of the puzzling report and other data released on Friday showing a robust comeback in services industry activity last month.
The senior international economist of UniCredit Bank in London, Daniel Vernazza, stated that the labor market was still “running hot, too hot for the Fed’s liking.” According to the facts, “Anyone who believed the Fed may cease raising as soon as its March meeting is likely to be disappointed.”
According to a poll of businesses, nonfarm payrolls increased by 517,000 jobs last month, the largest in the previous six months. In a Reuters survey, economists predicted an increase of 185,000. Data for December was updated to reflect a larger number of jobs added (260,000 as opposed to the previously reported 223,000). The increase in employment last month was much more than the monthly average of 401,000 in 2022.
The Bureau of Labor Statistics (BLS) of the Labor Department published its annual payrolls “benchmark” adjustment with the January report and modified the methods it employs to smooth the data for typical seasonal swings in the establishment survey.
In comparison to earlier estimates, the economy added 568,000 more employment in the 12 months ending in March 2022. Payroll figures from April through December were revised, and those results also revealed more jobs were created than anticipated. Instead of the 4.5 million jobs that were first estimated, the economy added 4.8 million in 2022.
The changes disproved Philadelphia Fed researchers’ claims that the employment growth in the second quarter of 2022 was overestimated by almost a million jobs, which they made in a study they published in December.
About 10% of employment was reclassified into new industries as a result of the BLS’s revisions to its system for classifying industries. The leisure and hospitality sector created 128,000 jobs last month, with 99,000 of those in restaurants and bars, leading the way.
The number of jobs in leisure and hospitality is still 495,000 below its pre-pandemic level. Employment in professional and commercial services increased by 82,000, while temporary positions, a sign of upcoming hiring, recovered by 25,900 after falling for many months. Government payrolls increased by 74,000 as a result of the restoration of California’s striking university employees.
25,000 more positions were added to the construction payrolls, largely at speciality trade contractors. By 19,000 jobs, manufacturing employment increased.
Wall Street stocks were primarily trading lower. Compared to a basket of currencies, the dollar increased. Treasury prices dropped.
SLOWER WAGE GROWTH
Following an increase of 0.4% in December, average hourly wages rose by 0.3% last month. This reduced the year-over-year increase in wages from 4.8% in December to 4.4%, the weakest increase since August 2021. However, salary growth for 2022 was increased, which suggests that wage inflation will only moderately slow down compared to earlier predictions. From 34.4 hours in December, the average workweek grew to 34.7 hours in January.
Conrad DeQuadros, senior economic advisor at Brean Capital in New York, commented: “While it is natural to be skeptical of the degree of strength in payroll growth and the increase in total hours worked given the perceived slowing of growth, we have been pointing out that almost all the labor market indicators going into this report showed an improvement in labor market conditions.
The employment data, according to President Joe Biden, was evidence that his economic strategy was effective. The Democratic president tweeted, “Jobs are going up, inflation is going down.”
The Federal Reserve announced “ongoing rises” in borrowing costs on Wednesday as it increased its policy rate by 25 basis points to a range of 4.50%–4.75%. According to government figures released this week, there were 11.9 opportunities for every unemployed individual at the end of December, with 11 million job openings overall.
New population projections were also included by the BLS in the household survey, which is where the unemployment rate is calculated. As a result, even though it was unaffected by the new population limitations, the unemployment rate, which is now 3.4% and is the lowest since May 1969, cannot be compared to December’s rate of 3.5%.
Even though household employment increased by 894,000, the rise was just 84,000 when the latest population estimates were taken into account. After accounting for population controls, there were about 886,000 new workers, though the total fell by 5,000.
The percentage of Americans who are working age and either have a job or are searching for one increased to 62.4% in January from 62.3% in December. After accounting for the updated population projections, it remained unaltered.
The employment report suggested that manufacturing production increased in December. Additionally, there are indications that 2023’s retail sales are off to a good start. 450 basis points have been added to the federal funds rate since last March, yet the economy has remained resilient.
Rick Rieder, chief investment officer of global fixed income at BlackRock in New York, said, “The Fed would be well-served to consider this a success and think that slowing down the rate of raises, would allow the employment market to bend, but maybe not break.”
Today offers convincing evidence that the employment market is not collapsing and that the economy can adjust to adversity and continue to grow.