The U.S. labor market continues to defy predictions, as U.S. employers added 353,000 new jobs in January, much more than expected, according to the latest employment report from the U.S. Bureau of Labor Statistics.
“Significantly beating analyst expectations, the labor market represents the resiliency of the U.S. economy,” said Geno Cutolo, president of Adecco North America.
Sam Kuhn, an economic data analyst at Appcast, added that “Once again, it seems the labor market is a beast that cannot be tamed—not by recession expectations, not by the highest interest rates in over twenty years, nor by inflationary pressures. We shouldn’t be too swayed by one month of data, though,” he said. “The labor market is still on a cooling trend compared to recent years and January’s data historically includes some statistical quirks.”
Employment gains not only blew past expectations in January, but a host of revisions to 2023 data shows last year was slightly stronger than initially believed, said Nick Bunker, economic research director for North America at the Indeed Hiring Lab.
For example, December’s payroll gains were revised upward to 333,000 from 216,000.
Daniel Zhao, Glassdoor senior economist, calculated those revisions pushed jobs growth for 2023 up to 3.0 million, up from the originally reported 2.7 million. “The 3 million jobs added in 2023 is roughly in line with the total job gains from 2014-2015, and above the average annual job gains from 2016–2019,” he said. “The downward revisions were most significant in transportation and warehousing and professional and business services, two sectors that had both enormous growth and a subsequent hangover in the last few years.”
Analysts noted that employment measures for January can be tricky to read and have been well above expectations the last two years, possibly exaggerated by seasonal hiring.
The blockbuster jobs report raises new questions about when the Federal Reserve will lower interest rates. Rate cuts have already been effectively ruled out for their next meeting in March.
“This report will not bolster confidence in the Federal Reserve to soon start rate cuts,” Kuhn said. “This labor market might still be a bit too heated to inspire confidence in a slowing economy that will not prompt inflation to resurge.”
Payroll employment increased by an average of 255,000 jobs per month in 2023, a solid sum. A large share of hiring last year, however, came from three sectors: government, health care, and leisure and hospitality.
“The gains in January were broad-based, with almost two-thirds of industries adding jobs or holding steady in January, the highest level since January 2023,” Bunker said.
“Job gains were broadly distributed across the economy, with even manufacturing (23,000) and retail (45,000)—two sectors where job growth was particularly weak in 2023—posting strong gains,” said Julia Pollak, chief economist at ZipRecruiter. “Health care (70,000), and professional and business services (74,000), added robust numbers of jobs.”
Public-sector employment continued to trend up in January (36,000), but below the average monthly gain of 57,000 in 2023. Employment in the information industry, which includes technology companies, the film industry, publishing, and telecommunications, increased by 15,000 jobs. Overall, however, employment in this industry is down by 76,000 since a recent peak in November 2022.
“We expect continued growth in the health care and financial services industries as more positions open up due to the aging population and the start of the tax season, respectively,” Cutolo said.
Becky Frankiewicz, president and chief commercial officer of ManpowerGroup, said that real-time data shows employers seeking to hire for IT, health care and public-sector roles. “We’re also seeing an expected post-holiday hangover in retail and logistics, balanced by increases in IT, finance, accounting and engineering. Looking at the bigger picture, we continue to see a post-pandemic rebalancing. While hiring isn’t as strong as a year ago, it is better than pre-pandemic and has improved month-over-month. Overall, more jobs are available now for each unemployed worker than there were before the pandemic, creating a stable environment for employers and employees.”
Staffing employment is indicative of a strong but cautious labor market, said Noah Yosif, chief economist at the American Staffing Association. “The market’s overall strength continues to create opportunities for staffing companies to address specific talent needs in the short-term, helping employers fill an estimated 9 million open positions, as well as to source and deploy talent for project-specific engagements.”
Unemployment Stays Flat
The unemployment rate held at 3.7 percent for the third month in a row. It ranged from 3.4 percent to 3.8 percent during 2023 and has stayed under 4 percent for the last 24 months.
A more encompassing measure of unemployment that includes discouraged workers and those holding part-time jobs for economic reasons edged higher to 7.2 percent. The labor force participation rate was unchanged at 62.5 percent.
“The share of workers that were employed part-time for economic reasons continued to rise, suggesting ongoing caution from employers to expand headcount too much,” Bunker said. “The employment-to-population ratio did increase over the month, but after declining in late 2023 has still not gotten back to last year’s peak level.”
High-profile layoffs have received a lot of attention, but job cuts are still low. The latest weekly initial jobless claims data show a slight uptick in those filing for unemployment, but it seems that companies are still hesitant to part with workers in a tight labor market.
Pollak said that working hours are something to keep an eye on. “Average weekly working hours dropped to the lowest level since the pandemic recession,” Pollak said. She explained that during good economic times, the work week typically ranges between 34.3 and 34.6 hours. In January, the length of the work week fell to 34.1 hours, the lowest number since 2010 outside the pandemic recession.
“When consumer demand slackens, companies typically cut workers’ hours before cutting payrolls,” she said. “Today’s work week reading flashes a warning sign for the economy that job cuts could be looming.”
Average hourly earnings increased 0.6 percent. On a year-over-year basis, wages jumped 4.5 percent, well above the 4.1 percent forecast.
“This rate of wage growth on top of the significant upward revisions is likely still too high for the Federal Reserve’s liking, though improving productivity suggests there is room for stronger wage growth, and falling hours and quits rates signal that hourly wage growth may decelerate in the coming months,” Zhao said.