Washington, Feb. 4 (BNA): U.S. job growth accelerated sharply in January while the unemployment rate ticked more than a 53-1/2-year low of 3.4%, pointing to a very tight job market, and a potential headache for the Fed. Reserve officials as they battle inflation.
Friday’s closely watched employment report from the Labor Department also showed that job creation last year was much stronger than previously expected, indicating that the economy was nowhere near recession. Although wage inflation slowed further in January, average hourly earnings rose faster in 2022 than previously expected.
According to Reuters, the strength in hiring, which occurred despite layoffs in the technology sector as well as in sectors such as housing and finance that are sensitive to interest rates, poured cold water on market expectations that the US central bank was about to pause monetary pause. policy tightening cycle.
Economists said Friday’s scratch report and other data showing a sharp pickup in service industry activity last month suggested the Fed could raise its target interest rate above the recently forecast peak of 5.1% and keep it there for some time.
“The job market is still hot, too hot for the Fed to like,” said Daniel Vernazza, chief international economist at UniCredit in London. “Anyone who thinks the Fed may stop rallying once it meets in March is likely to be disappointed by this evidence.”
A survey of enterprises showed non-farm payrolls increased by 517 thousand jobs last month, the most in six months. Economists polled by Reuters had expected a gain of 185,000. Data for the month of December has been revised upwards to show that 260,000 jobs were added instead of the 223,000 previously reported. Employment growth last month was well above the monthly average of 401,000 in 2022.
With the January report, the Department of Labor’s Bureau of Labor Statistics (BLS) published a revision of the annual payroll “standard” and an update to the formulas it uses to smooth data for regular seasonal fluctuations into the Enterprise Survey.
The economy added 568,000 more jobs in the 12 months to March 2022 than previously reported. Revisions to salary data from April through December also showed that more jobs were created than previously expected. The economy added 4.8 million jobs in 2022 instead of the 4.5 million previously reported.
The revisions dispel claims by researchers at the Federal Reserve Bank of Philadelphia who published a paper in December suggesting employment growth in the second quarter of 2022 was overstated by about 1 million jobs.
The BLS has revised its industry classification system, reclassifying about 10% of employment into different industries. The leisure and hospitality sector led the large increase in employment last month, adding 128,000 jobs, of which 99,000 were in restaurants and bars.
Employment opportunities in leisure and hospitality remain 495,000 jobs below the pre-pandemic level. Employment in professional and business services rose by 82,000, with temporary help jobs, a harbinger of future employment, rising by 25,900 after falling for several months. Government salaries jumped 74,000, buoyed by the return of striking college workers in California.
Construction salaries increased by 25,000 jobs, which were mostly among specialty commercial contractors. Industrial employment increased by 19,000 jobs.
Stocks on Wall Street traded mostly lower. The dollar rose against a basket of currencies. US Treasury bond prices fell.
Average hourly earnings rose 0.3% last month after gaining 0.4% in December. That cut the annual wage increase to 4.4%, the smallest rise since August 2021, from 4.8% in December. But wage growth has been revised upward for 2022, indicating only a moderate pace of slowing wage inflation than previously thought. The average workweek rose to 34.7 hours, from 34.4 hours in December.
“While it is natural to be skeptical about the degree of strength in salary growth and the increase in total hours worked given the marked slowdown in growth, we noted that almost all of the labor market indicators included in this report showed improvement in performance,” said Conrad de Quadros, chief economic advisor at Brian Capital New York: “Labor Market Conditions.”
President Joe Biden said the employment report was a sign that his economic plan was working. “Jobs are up and inflation is down,” the Democratic president wrote on Twitter.
The Fed on Wednesday raised its policy rate by 25 basis points to a range of 4.50%-4.75%, promising “continued increases” in borrowing costs. Government data this week showed there were 11 million job vacancies at the end of December, with 1.9 opportunities for every unemployed person.
The BLS also included new household survey population estimates, from which the unemployment rate was derived. As such, the unemployment rate of 3.4%, the lowest since May 1969, is not comparable to the 3.5% rate in December, although it was not affected by the new population controls.
Home employment jumped 894,000, but factoring in the new population estimate, the increase was only 84,000. About 886,000 people entered the labor force, although the number decreased by 5,000 after adjusting for population controls.
The labor force participation rate, or the share of working-age Americans who have a job or are looking for a job, rose to 62.4% in January from 62.3% in December. It has not changed after taking into account the new population estimates.
The employment report hinted at a recovery in industrial production last month. There are also signs that retail sales are off to a strong start in 2023. The economy has continued to show resilience despite a 450 basis point hike in interest rates since last March.
said Rick Reader, chief investment officer, global fixed income at BlackRock in New York.
“Today provides good evidence that the labor market is not breaking and evidence of how the economy can adjust and adapt to remain vibrant in the face of major headwinds.”