Wow is the only word that adequately describes the labor market as we start 2023. The January jobs report blew away expectations, according to the Bureau of Labor Statistics.
- Total nonfarm payroll employment rose by 517,000 in January, this is up from 260k in December and is the biggest number since February 2022 (+715k).
- The unemployment rate fell to 3.4%, down from 3.5% in December and is now the lowest rate since May 1969.
Better Than Expected. Economists predicted that January would only create 185,000 jobs.
Broad-Based. Every single industry saw the benefit of 500k new jobs in January. Leisure & Hospitality was the biggest beneficiary with 128k new jobs.
- Professional and business services took the number two spot with 82,00o new jobs followed by Government(+74k), Health care +58k) and retail (+30k).
- Good news for the housing industry as the construction industry added 25,000 jobs in January.
Wages. Average hourly earnings for all employees on private nonfarm payrolls rose
by 10 cents, or 0.3%, to $33.03. Over the past 12 months, average hourly
earnings have increased by 4.4%.
- Unfortunately, January’s consumer price index is likely to show inflation still above 6.0% which means even with 4.4% wage growth workers are still seeing their real wages fall.
Revisions. November’s report was revised up by 34k to 290,000 and December was revised up by +37k to 260,000. Combined with January’s report the last three months have now seen over 1.1 million jobs added to the economy.
Analysis. Suprise was easily the top reaction to Friday’s jobs number but after that most of the analysis focused on the Fed hikes and recession talk.
- Neil Irwin noted that this number solidifies future rate hikes, “March rate hike even more of a done deal, May too. No pause in tightening soon.”
- Heather Long at the Washington Post said this settles the recession debate. “The US economy gained an astonishing 517,000 jobs in January – much better than expected. Unemployment rate: 3.4% –> Lowest in decades. Wages: +4.4% for past year (up 0.3% in January) Bottom line: This is NOT an economy in recession”
Hold Up. Not all economists were taking this report at face value. Some were questioning it.
- Adam Ozimek, from the Economic Innovation Group, wrote on Twitter “Not to be too negative here, but I really don’t believe 500k. Would bet non-trivial measurement error there. And its measurement error that will give the fed too much confidence that its safe to keep rates contractionary for higher and longer.”
- Mark Zandi, from Moody’s Analytics, had similar concerns, “Whoa! The BLS jobs report for January was VERY strong. So strong, I don’t believe it. The BLS is likely having measurement issues. Most likely, difficulty seasonally adjusting the data, which is especially important in January. This January was the 5th warmest on record.”