Employers in the United States added 517,000 jobs in January, a surprisingly strong gain in the face of the Federal Reserve’s aggressive drive to slow growth and tame inflation with higher interest rates.
The unemployment rate dipped to 3.4 percent, the lowest level since 1969.
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Friday’s government report added to the picture of a resilient labour market with low unemployment, relatively few layoffs and many job openings even as most economists foresee a recession approaching. Although good for workers, employers’ steady demand for labour has also helped accelerate wage growth and contributed to high inflation.
But the Fed’s inflation watchers might be reassured somewhat by January’s wage data: Average hourly pay rose 4.4 percent last month from a year earlier, slower than the 4.8 percent year-over-year increase in December. And from December to January, wages rose 0.3 percent, below the 0.4 percent increase the previous month.
On top of the sizzling job growth it reported for January, the government on Friday also revised up its estimate of employment gains in November and December by a combined 71,000.
More Americans also entered the labour force last month. The proportion of adults who either had a job or were looking for one, known as the labour force participation rate, ticked up to 62.4 percent. That was the highest level since March although still well below pre-pandemic figures.
January’s job growth far exceeded December’s 260,000 total and extended a streak of powerful hiring gains that raised concerns at the Fed about inflation pressures. The US central bank has raised its key rate eight times since March to try to contain inflation, which hit a four-decade high last year but has slowed since then.
Companies are still seeking more workers and are hanging tightly onto the ones they have. Putting aside some high-profile layoffs at big tech companies like Microsoft, Google and Amazon, most workers are enjoying an unusual level of job security despite recession fears.
For all of 2022, the economy added a sizzling average of 375,000 jobs a month. That was a pace vigorous enough to have contributed to the painful inflation Americans have endured, the worst such bout in 40 years. A tight job market tends to put upward pressure on wages, and higher salaries feed inflation.
The Fed – hoping to cool the job market, the economy and inflation – has steadily raised borrowing rates, most recently on Wednesday. Year-on-year measures of consumer inflation have steadily eased since peaking at 9.1 percent in June. But at 6.5 percent in December, inflation remains far above the Fed’s 2 percent target, which is why the central bank’s policymakers have reiterated their intent to keep raising borrowing rates for at least a few more months.
The Fed is aiming to achieve a “soft landing”, a pullback in the economy that is just enough to tame high inflation without triggering a recession. The policymakers hope that employers can slow wage increases and inflationary pressures by reducing job openings but not necessarily by laying off many employees.
But the job market’s resilience is not making that hoped-for outcome any easier. On Wednesday, the Labor Department reported that employers posted 11 million job openings in December, an unexpected jump from 10.4 million in November and the largest number since July. There are now about two job vacancies, on average, for every unemployed American.
The Labor Department’s monthly count of layoffs has amounted to fewer than 1.5 million for 21 straight months. Until 2021, that figure had never dropped so low in records dating back two decades.
Yet another sign that workers are benefiting from unusual job security is the weekly number of people who apply for unemployment benefits. That figure is a proxy for layoffs, one that economists monitor for clues about where the job market might be headed. The government said Thursday that the number of jobless claims fell last week to its lowest level since April.
The pace of applications for unemployment aid has remained at rock bottom despite a steady stream of headline-making layoffs. Facebook parent Meta is cutting 11,000 jobs, Amazon 18,000, Microsoft 10,000 and Google 12,000. Some economists suspect that many laid-off workers might not be showing up at the unemployment line because they can still find new jobs easily.