The employment outlook started 2023 on a surprisingly strong note, with nonfarm payrolls posting their biggest gain since last July.
nonfarm payrolls increased by 517,000 in January, well above the Dow Jones estimate of 187,000. The unemployment rate fell to a record low of 3.4%, compared with the estimate of 3.6%.
The US has not seen an unemployment rate as low as January since 1969. Unemployment among African Americans dipped slightly to 5.4%, but rose for Hispanic Americans to 4.5%, which is still higher than the national average.
Job growth in a multitude of sectors helped fuel the huge-versus-estimate pace. Leisure and hospitality, an industry that shed many jobs early in the pandemic and has scrambled to hire, added 128,000 jobs in January, leading all sectors. Other significant gainers were professional and business services (82,000), government (74,000) and health care (58,000).
Wages also posted solid gains for the month. Median hourly earnings increased 0.3%, in line with the estimate, and 4.4% higher than a year ago, 0.1 percentage points above expectations. The labor force participation rate and the employment-to-population ratio increased, reinforcing the image of a persistently strong labor market.
The increase in job creation comes despite efforts by the Federal Reserve to slow the economy and reduce inflation from its highest level since the early 1980s. The Fed has raised its benchmark interest rate eight times since March 2022, most recently with a 0.25% increase on Wednesday.
In its latest assessment of the jobs outlook, the Fed on Wednesday removed previous language saying earnings have been «robust» and noted only that the «unemployment rate has remained low.» However, Chairman Jerome Powell noted in his post-meeting press conference that the labor market «remains extremely tight» and is still «unbalanced.» As of December, there were about 11 million job openings, or just two for every available worker.
«Today’s report is an echo of the surprisingly resilient 2022 job market, beating recession fears,» said Daniel Zhao, chief economist at jobs review site Glassdoor. «The Federal Reserve has a New Year’s resolution to cool the job market, and so far, the job market is going backwards.»
One metric in the latest release likely to encourage the Fed is average hourly earnings, which declined to 4.4% in January. That slowdown “should ease inflationary pressures in the near term as wage growth comes back in line,” LPL chief financial economist Jeffrey Roach said in a note Friday.
Inflation has been on a downward trend, falling to 6.5% per year in December, according to the consumer price index. That is down from 7.1% in November after reaching a peak of 9.1% in June of last year.
Although Fed officials have expressed their intention to keep rates high for as long as it takes to bring inflation down to their 2% target, markets are betting the central bank will start cutting before the end of the year. Traders increased their bets that the Fed would approve a quarter percentage point interest rate hike at its March meeting, with the probability rising to 94.5%, according to CME Group data.