Over 350,000 Jobs Added, Exceeding Expectations
The January 2024 jobs report showed that the US economy added 353,000 jobs last month, far exceeding economists’ expectations of around 180,000 jobs.^[1] The unemployment rate held steady at 3.4%.^[2] January marked the 23rd consecutive month of job gains.
This level of job growth surprised experts, given recent high profile layoffs at companies like Amazon, Microsoft, and Google.^[3] However, the report shows that the overall labor market remains resilient.
The sectors with the strongest job growth in January were leisure and hospitality, professional services, health care, and construction.^[4] Notable details from the report:
- Leisure and hospitality added 128,000 jobs as things like travel and dining out remain strong. This sector was hit hard early in the pandemic but has seen a robust recovery.^[5]
- Health care employment rose by 58,000 due to steady demand for care and an aging population. Nurses and home health aides are seeing increasing job opportunities.^[6]
- Construction added 25,000 jobs in January. Home building and infrastructure projects continue driving growth here.^[7]
- Manufacturing employment edged up by 6,000 jobs after declining in December. The sector faces ongoing supply chain issues and economic uncertainty overseas.^[8]
Wage growth remains elevated but is showing some signs of moderating. Average hourly earnings rose 0.3% in January and are up 4.4% over the past year.^[9] While still high historically, this yearly gain is down from a peak of 5.6% in March 2022.^[10] Moderating wage pressures could ease Federal Reserve interest rate hike plans if the trend continues.
| Sector | January Job Gains |
|---|---|
| Leisure & Hospitality | 128,000 |
| Health Care | 58,000 |
| Construction | 25,000 |
| Manufacturing | 6,000 |
Revision Shows Even Stronger Job Market in 2022
In addition to the strong January 2024 report, the Labor Department revised up its estimates for job growth in November and December 2022. November saw a gain of 263,000 rather than 256,000 as initially reported. And December was revised up to 260,000 from 223,000.^[11]
This means over 1 million jobs were created in the final quarter of 2022, showing more momentum in the labor market than previously thought. And around 4.5 million jobs were added for the full year, putting 2022 job growth at one of its strongest levels since 1978 when looking at percentage gains.^[12]
Fed Rate Hike Path Complicated by Strong Jobs Data
The blowout January jobs number complicates decision making for the Federal Reserve and its interest rate policy. Markets are currently forecasting rate cuts starting in late 2023 based on expectations of an economic growth slowdown or recession.^[13]
However, the Fed wants clear signs of moderating inflation before shifting to rate cuts, and strong job market data suggests inflationary pressures could persist. Policymakers face challenging tradeoffs between tamping down inflation and trying to engineer a “soft landing” rather than harsh recession for the economy.
For now, the Fed seems set to go through with a 25 basis point rate hike at its March meeting, judging that more tightening is needed to control inflation running well above its 2% target.^[14] But expectations for larger 50 or 75 basis point hikes later in 2023 have faded considerably after recent data.
The path ahead remains highly uncertain. An economic or geopolitical shock could quickly shift dynamics. And it’s unclear if moderating wage growth will continue. Policymakers will closely watch upcoming inflation and jobs reports.
Risks Remain Despite Labor Market Resilience
While job growth continues to look resilient for now, risks still cloud the economic outlook:
Inflation and Rate Hikes – While showing some improvements, inflation remains over 6% as of December 2022 based on the consumer price index measure.^[15] Higher mortgage rates and prices are slowing the housing sector. And further Fed rate hikes expected this year could begin impacting consumer and business activity more significantly.
Global Slowdown – Europe appears headed for recession, China’s economy is slowing, and developing economies face fallout. Weaker global growth would mean less demand for US exports.^[16]
Geopolitical Tensions – Russia’s ongoing war in Ukraine continues fueling uncertainty, especially around energy prices. Any expansion of the conflict would rattle markets.
Supply Chain Issues – Improving but still present after COVID, supply bottlenecks drive up costs and constrain economic potential. Policy support helped produce demand, now supply must catch up. ^[17]
Conclusion – Cautious Optimism for Now
The standout January jobs report and upward revisions bought some breathing room for the US economy in terms of recession odds this year. The labor market’s momentum shifted forecasts for Fed rate cuts to later in 2023 rather than early winter.
However, risks remain tilted to the downside looking out to 2024. Ongoing inflation paired with higher interest rates have historically led to recessions and job losses. This expansion is already historically lengthy. And shocks from factors like oil prices and Europe’s economic struggles could derail the progress at any time.
For now, consumers and businesses are demonstrating impressive resilience with solid job growth, healthy savings rates in many cases, and pent up demand leftover from the pandemic. Policymakers face difficult balancing acts in taming inflation without overcorrecting into harsh recession. Approaches will continually be reevaluated based on the incoming data.
The next several months present a critical window to see if moderation in wage and inflation rates can continue. That likely holds the key for avoiding substantial job losses moving through 2023 and into election season next year.
To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.
