The U.S. economy added 517,000 jobs in January, and the unemployment rate fell to 3.4% — the lowest level in over a half-century, the government said on Friday.
Why it matters:
Employers added jobs at an unexpectedly rapid pace, the latest sign of a hot labor market despite aggressive moves by the Federal Reserve to cool it down.
The numbers are more than double the 190,000 forecasters anticipated.
The extraordinary reportcomes as the Fed continues to dial back its pace of interest rates and prepares to raise rates further to restrain the economy and chill still-high inflation.
Fed chair Jerome Powell has acknowledged progress on slowing inflation in recent months while noting risks lie ahead. Among them is wage growth, which is rising at a pace still too swift for the Fed’s comfort.
In January, average hourly earnings rose 0.3% — or 4.4% over the previous year, according to Friday’s data.
The big picture:
The data also showed that employment in 2023 was even stronger than initially thought, with roughly 568,000 more jobs than previously reported.
The update was part of the Labor Department’s annual revisions, which incorporate more complete data from insurance records and updated seasonal adjustments.
The U.S. economy grew at an annualized 2.9% rate in the final months of 2022, the Commerce Department said on Thursday.
Why it matters:
Economists are bracing for a significant slowdown in economic activity as the Federal Reserve’s interest rates hikes take hold, but that certainly wasn’t the case in the final months of last year.
Economists expected the Gross Domestic Product figures to show the economy grew at a 2.6% annualized rate last quarter, after expanding at a 3.2% pace in the prior quarter.
Consumer spending and businesses built up private inventories gave GDP the biggest boost. Among the biggest drags: fixed investment, a category that includes housing.
By the numbers:
Over the calendar year, GDP grew by 2.1% in 2022 — a decent pace, especially considering the historically aggressive rate hikes by the Federal Reserve that sought to restrain economic activity to contain inflation.
Those rate hikes hit the housing sector particularly hard, which dragged down overall growth earlier last year.
Catch up quick:
The first half of 2022 was dogged by fears that the economy had entered a recession, after back-to-back quarters of contractions. But by the second half of the year, the economy had returned to growth mode.
The growth over 2022 was an expected slowdown from the 5.9% achieved in 2021, when the economy bounced back from the pandemic shock.
We really liked what we saw in the December jobs report, which made us more optimistic about the possibility the 2023 economy will hold up reasonably well. More details below.
Situational awareness: In less optimistic news, the Institute for Supply Management’s survey of service industry activity plunged in December, to 49.6% — down from 56.5% in November. This is the first time the index has been in negative territory since May 2020.
The U.S. labor market is extraordinarily strong, despite gloom-and-doom economic forecasts and high-profile layoffs.
That is the takeaway from December numbers, out this morning, that were outstanding in subtle and not-so-subtle ways.
Why it matters: If America’s economy is going to come in for a soft-landing — inflation dissipating without mass unemployment — you would expect to see numbers that look a lot like last month’s.
The economy continues to add a healthy number of new jobs, though the pace is moderating. Wages are rising, but not so quickly as to alarm economic policymakers. And more workers are entering the labor force, which — if sustained — could heal labor shortages.
The data has positive developments both for American workers — who continue to have abundant job opportunities — and for Fed officials seeking evidence that their inflation-fighting efforts are starting to cool job creation and wage growth to more sustainable rates.
The headline unemployment rate, at 3.5%, matched its lowest levels in decades. If you extend the calculation out a couple more decimal places, University of Michigan economist Justin Wolfers points out, it was 3.468%, the lowest since 1969!
It fell even as the labor force expanded by 439,000 workers, a welcome development on the supply front after months of little progress. More Americans working means fewer of the labor shortages that have contributed to inflation.
An additional 717,000 Americans reported being employed, helping resolve what had been a puzzling disconnect between different sources of labor market data — and in a positive direction.
A stunningly low jobless rate might raise some alarm bells at the Fed over the possibility the job market is too tight, and that this could fuel inflation. But the labor force growth and benign wage data (more on that below) may take the edge off those fears.
By the numbers: Employers are still hiring at a rapid pace — 223,000 in December — but slowing from early last year’s unsustainable numbers.
The economy has added roughly 247,000 jobs per month on average in the last three months, slower than the 366,000 in the prior three-month stretch, and less than half of the 539,000 jobs added each month in Q1 2022.
Evidence of tech layoffs did show up somewhat in the report, with the information sector shedding 5,000 jobs. Temporary help services employment fell by 35,000, the clearest sign employers are paring back demand for workers.
But most other sectors, including leisure and hospitality, construction and health care, continued to add jobs.
The bottom line: If we keep getting numbers like these, 2023 may not be such a rough year for workers after all.
Following a cooler-than-expected inflation reading in October, consumer price gains slowed even further last month: the Consumer Price Index rose 7.1% in the year ending in November, down from 7.7% the prior month, the Labor Department said on Tuesday.
Why it matters: Inflation is still way too high, but the data offers some hope that it can ease alongside a still-healthy economy.
By the numbers: On a monthly basis, CPI rose 0.1%, slower than the 0.4% in October.
Core CPI, which strips out volatile food and energy costs, also continued to ease. On a monthly basis, it rose 0.2% — up 6% over the 12 months ending in November.
In October, those figures were 0.3% and 6.3%, respectively.
Where it stands: The Federal Reserve has raced to try to get inflation under control, raising interest rates at a historic clip — moves that risk throwing the economy into a recession.
Officials will likely raise rates by a smaller (but still historically huge) amount following a two-day policy meeting that concludes on Wednesday.
That will come after surprisingly cooler inflation readings, though officials have warned that its war on inflation is far from over.
The jobs market stayed strong last month: Employers added 263,000 jobs, while the unemployment rate held at 3.7%, near the lowest level in a half-century, the Labor Department said on Friday.
Why it matters: The figures are the latest signal of a roaring labor market that continues to defy fears of a recession.
November’s payroll gains are above the addition of 200,000 jobs that economists had expected.
By the numbers: Job growth last month was slightly slower than the 284,000, added in October, which was revised up by 23,000. In September, the economy added 269,000 jobs, 46,000 fewer than initially estimated.
Average hourly earnings, a measure of wage growth, rose by 0.6% in November — faster than the prior month, when earnings rose by 0.5%. Over the past year ending in November, average hourly earnings increased by 5.1%.
The share of people working or looking for work, known as the labor force participation rate, ticked down to 62.1%, compared to 62.2% in October.
The backdrop: Economists have been bracing for cracks in the labor market thathave yet to appear.
It has been an ugly stretch for layoffs in a handful of sectors like technology, with large-scale job cuts announced at Meta, Amazon and Twitter.
But overall, the booming job markethas continued for workers, even in the face of ultra-aggressive efforts by the Federal Reserve to try to cool demand for labor to help put a lid on inflation.
Last month, Fed chair Jerome Powell said that employers bidding up wages to attract workers is not “the principal story of why prices are going up.”
Still, the labor market may point to clues about how inflation will evolve in certain categories, including industries within the services sector where wages make up the biggest costs for businesses, Powell said on Wednesday.
The report comes on the heels of negative GDP growth during the first half of the year. In the January through March period, the economy contracted at a 1.6% annual rate. In the second quarter, the economy shrank at a 0.6% annualized pace.
Between the lines: The latest GDP report is among the final major economic data releases before the midterm elections, where voters have ranked the economy as a critical issue.
The labor market is solid, with the unemployment rate at the lowest level in over 50 years. But soaring inflation has eaten away at Americans’ wage gains.
The backdrop: The Federal Reserve is trying to engineer an economic slowdown in a bid to crush high inflation. It has swiftly raised borrowing costs five times this year, with another big increase likely ahead at its upcoming policy meeting next week.
What they’re saying: “For months, doomsayers have been arguing that the US economy is in a recession and Congressional Republicans have been rooting for a downturn,” President Biden said in a statement. “But today we got further evidence that our economic recovery is continuing to power forward.”
Consumer prices were unchanged in July, as plunging prices for gasoline dragged the Consumer Price Index down to zero. Core inflation, which excludes energy and food, rose only 0.3%, below what analysts expected.
Driving the news: The Labor Department reported that overall consumer prices rose 0% last month, and are up 8.5% over the past year. That compares to a 9.1% year-over-year reported in June.
Why it matters: Falling gasoline prices are clearly giving American consumers some inflation relief, and the broader inflation picture was more favorable in July than economists had expected.
By the numbers: Gasoline prices fell 7.7% in July, dragging down headline inflation. Other items with falling prices included used cars and trucks (-0.4%) and airfares (down 7.8%).
But rents kept rising, a major factor in stubbornly high underlying inflation. Renters faced a 0.7% rise in costs.
What’s next: The Federal Reserve has indicated it intends to keep raising interest rates until there is clear evidence inflation is waning. After two straight months of extremely hot inflation readings, this report will be welcome news.
Initial jobless claims, week ended March 19: 187,000 vs.210,000 expected and a revised 215,000 during prior week
Continuing claims, week ended March 12: 1.350 millionvs.1.400 million expected and a revised 1.417 million during prior week
At 187,000, new jobless claims improved for a back-to-back week and reached the lowest level since September 1969. Continuing claims also fell further to reach 1.35 million — the least since January 1970.
The labor market has remained a point of strength in the U.S. economy, with job openings still elevated but coming down from record levels as more workers rejoin the labor force from the sidelines.
Going forward, however, some economists warned that new cases of the fast-spreading sub-variant of Omicron, known as BA.2, could at least temporarily disrupt mobility and economic activity across the country. As of this week, about one-third of COVID-19 cases in the U.S. have been attributed to the sub-variant, though overall new infections have still been trending down from January’s record high. The impact on the labor market — and on demand in the service sector especially — remains to be seen.
“Right now, U.S. cases are in the sweet spot between the bottom of the initial Omicron wave and the impending explosion in BA.2 cases, but this probably won’t last long,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a note this week. “Our bet … is that the coming BA.2 wave will trigger a modest but visible pull-back in the discretionary services sector, thereby dampening consumption in the first month of the second quarter.”
Still, many economists and policymakers have pointed out that the labor market withstood prior disruptions due to the Omicron wave earlier this year. Non-farm payrolls grew more than expected in each of January and February despite the outbreak.
“The labor market has substantial momentum. Employment growth powered through the difficult Omicron wave, adding 1.75 million jobs over the past three months,” Powell said in a speech Monday. “By many measures, the labor market is extremely tight, significantly tighter than the very strong job market just before the pandemic.”
The tightness of the labor market has also strongly informed the Fed’s decisions in pressing ahead with tightening monetary policy, with the economy showing clear signs of strength and the ability to handle less accommodative financial conditions. Last week, the Fed raised interest rates by 25 basis points in its first rate hike since 2018. And St. Louis Fed President Jim Bullard, the lone dissenter of that decision who had called for a more aggressive 50 basis point rate hike last week, justified his vote in part given the strength of the U.S. labor market even in the face of decades-high rates of inflation.
“U.S. labor markets are today already stronger than they have been in a generation,” Bullard said in a statement.
First-time unemployment filings fell by 8,000 claims from the previous week’s reading, marking the second lowest print during the pandemic and signaling continued recovery in the labor market as high demand for workers pours into the new year.
The Labor Department released its latest report on initial and continuing claims on Thursday at 8:30 a.m. ET. Here were the main metrics from the print, compared to consensus estimates compiled by Bloomberg:
Initial jobless claims, week ended Dec. 25: 198,000 vs. 206,000 expected and upwardly revised to 206,000 during prior week
Continuing claims, week ended Dec. 18: 1.716 million vs. 1.875 million expected and downwardly revised to 1.856 million during prior week
The newest print brings the four-week moving average to 199,300 in the week ending Dec. 25, Bloomberg data reflected. Continuing claims dropped to a fresh pandemic low of 1.716 million. Forecast for this week’s jobless claims release ranged from 190,000-225,000 from 22 economists surveyed by Bloomberg.
First-time filings for unemployment remained below the 2019 average of 218,000, when the unemployment rate was at a half-century low of 3.5%, according to Bloomberg. The current unemployment rate is also expected to edge down to 4.1% in December as the labor market continues to tighten.
At 205,000, last week’s initial unemployment claims were on par with economist forecasts and below pre-pandemic levels yet again. Earlier in December, jobless claims fell sharply to 188,000, the lowest level since 1969. The prints serve an early indication of the relative strength expected to show in December’s jobs report, though the economic impact of the virus remains unclear.
“Fortunately, there’s no evidence in this data of a new wave of fresh job loss,” Bankrate senior economic analyst Mark Hamrick said, commenting on last week’s figures. “New claims are only slightly above the lowest point in decades notched a couple of weeks ago.”
“With so much uncertainty now and the high level of concern about the Omicron variant, we’ll take stability when we can get it,” Hamrick added.
“It’s stunning to see how much the rate has fallen in the last five months,” he told Yahoo Finance Live. “We expect that pace of decline to slow, but it doesn’t take much to get below 4%, even with a tick up in the labor participation rate, which has been depressed over the last year and a half.”
Record cases of COVID-19 may discourage workers from looking for work as U.S. households continue to cite fear of COVID or virus-related caretaking needs as reasons for staying out of the job market.
“The pandemic’s resurgence is affecting the economy,” Hamrick said in a note last week. “The question is for how long and how much, and it is too early to know the answers.”