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Job Market Defies Expectations, Adds 517,000 In January

David Krechevsky
Feb 03, 2023
Photo credit: Getty Images/VeranikaSmirnaya

Combined with upward revisions for November & December, market proves even stronger than many thought.

  • Unemployment rate fell to 3.4%, the lowest level since 1969.

When Federal Reserve Chairman Jerome Powell announced the latest rate hike earlier this week, he said not to expect rate cuts in the near future because the fight against inflation wasn’t over.

The latest employment report backed that up with a vengeance.

According to the U.S. Labor Department’s Bureau of Labor Statistics (BLS), the U.S. economy added a startling 517,000 jobs on a seasonally adjusted basis in January, blowing past analysts’ expectations that the pace of hiring would slow to 190,000 jobs.

The surprising gain was up from 260,000 in December – and that number was revised upward by 71,000 jobs. November’s job gains also were revised upward by 34,000 to 290,000 jobs.

Combined, in the past three months the economy has added nearly 1.07 million jobs, or an average of 355,667 jobs per month.

Job growth was widespread, led by gains in leisure & hospitality, professional & business services, and health care. 

The unemployment rate slipped to 3.4% from 3.5% in December, reaching its lowest level since 1969.

While the pace of job growth has accelerated, wage growth slowed a bit in January, up just 0.3% from December. Wage growth is a key inflation indicator that is watched closely by the Fed.

January’s employment report follows the Fed’s announcement Wednesday that it would boost the federal funds rate by 0.25% to a target range between 4.25% and 4.75%. The increase was the eighth since the Fed began tightening monetary policy last March to fight the worst inflation in 40 years.

The 25-basis-point hike was the smallest of the eight increases, following a 50-basis-point increase in December. That hike had followed four consecutive 75-basis-point increases, marking the fastest pace of increases in decades.

During a news conference Wednesday following the conclusion of the Federal Open Market Committee’s two-day meeting, Powell said that while there were signs that inflation is slowing, there is still work to be done.

“The job is not fully done. We have a sector [the core services minus housing sector] that represents 56% of the core inflation index where we don’t see this disinflation yet,” he said. 

“It would be very premature to declare victory or to say we’ve got this. Until we do [see signs of disinflation in that sector], we see ourselves as having a lot of work left to do.”

Mike Fratantoni, senior vice president and chief economist for the Mortgage Bankers Association (MBA), said the January employment report broke a six-month trend of slowing job growth.

“Recent data on unemployment insurance claims have indicated a stronger job market than the string of layoff announcements from the technology and financial sectors would suggest,” Fratantoni said. “Job growth of 517,000 in January, and a drop in the unemployment rate to 3.4%, puts an exclamation point on the divergence between measures of economic activity and job market statistics.”

He did note that much of the recent job growth has been concentrated in sectors like leisure & hospitality, “which have struggled to fill job openings for much of the past year. The decline in wage growth to 4.4% may be reflecting some of this shift to sectors that typically are lower wage. However, slower wage growth in the service sector is the trend that Federal Reserve officials have been seeking, despite the persistent strength in the job market.”

He also said the upward revisions for job gains in November and December show the job market is even stronger than many thought.

“With the job market this tight, the Federal Reserve and financial markets will remain even more focused on the inflation data,” he said. “We expect another 25-basis-point increase in the federal funds target in March, but do anticipate that the unemployment rate, which does tend to be a lagging indicator, will increase through the course of the year.”

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