Payrolls increased by 517,000 in January, crushing estimates, as unemployment rate hit 53-year low
The employment picture started off 2023 on a stunningly strong note, with nonfarm payrolls posting their biggest gain since July 2022.
Nonfarm payrolls increased by 517,000 for January, above the Dow Jones estimate of 187,000 and December’s gain of 260,000.
“It was a phenomenal report,” said Michelle Meyer, chief U.S. economist at the Mastercard Economics Institute. “This brings into question how we’re able to see that level of job growth despite some of the other rumblings in the economy. The reality is it shows there’s still a lot of pent-up demand for workers were companies have really struggled to staff appropriately.”
The unemployment rate fell to 3.4% versus the estimate for 3.6%. That is the lowest jobless level since May 1969. The labor force participation rate edged higher to 62.4%. A broader measure of unemployment that includes discouraged workers and those holding part-time jobs for economic reasons also edged higher to 6.6%.
“Today’s jobs report is almost too good to be true,” wrote Julia Pollak, chief economist at ZipRecruiter. “Like $20 bills on the sidewalk and free lunches, falling inflation paired with falling unemployment is the stuff of economics fiction.”
Markets, however, dropped following the report, with the Dow Jones Industrial Average down about 100 points in early trading.
Growth across a multitude of sectors helped propel the massive beat against the estimate.
Leisure and hospitality added 128,000 jobs to lead all sectors. Other significant gainers were professional and business services (82,000), government (74,000) and health care (58,000). Retail was up 30,000 and construction added 25,000.
Wages also posted solid gains for the month. Average hourly earnings increased 0.3%, in line with the estimate, and 4.4% from a year ago, 0.1 percentage point higher than expectations though a bit below the December gain of 4.6%.
The unemployment rate for blacks fell to 5.4%, while the rate for women was 3.1%.
“When you look at this, it’s pretty hard to shoot any holes in this report,” said Dan North, senior economist at Allianz Trade North America.
The surge in job creation comes despite the Federal Reserve’s efforts to slow the economy and bring down inflation from its highest level since the early 1980s. The Fed has raised its benchmark interest rate eight times since March 2022.
In its latest assessment of the jobs picture, the Fed on Wednesday dropped previous language saying gains have been “robust” and noted only that the “unemployment rate has remained low.”
However, Chairman Jerome Powell, in his post-meeting news conference, noted the labor market “remains extremely tight” and is still “out of balance.” As of December, there were about 11 million job openings, or just shy of two for every available worker.
“Today’s report is an echo of 2022’s surprisingly resilient job market, beating back recession fears,” said Daniel Zhao, lead economist for job review site Glassdoor. “The Fed has a New Year’s resolution to cool down the labor market, and so far, the labor market is pushing back.”
Though Fed officials have expressed their intention to keep rates elevated for as long as it takes to bring down inflation, markets are betting the central bank starts cutting before the end of 2023. Traders increased their bets that the Fed would approve a quarter percentage point interest rate hike at its March meeting, with the probability rising to 94.5%, according to CME Group data.
The Fed is hoping to engineer a “soft landing” for an economy that is pressured by inflation and geopolitical factors that held back growth in 2022.
Most economists still expect this year to see at least a shallow recession, though the labor market’s resilience could cause some rethinking of that.
“Our base case is still recession likely toward the latter part of the year,” said Andrew Patterson, senior economist at Vanguard. “One report is not indicative of a trend, but certainly if we continue to see upside surprises, our baseline is up for discussion. This does increase the marginal probability of a soft landing.”
Gross domestic product grew at a 2.9% pace in the fourth quarter of 2022. The Atlanta Fed’s GDPNow tracker is pointing toward a 0.7% increase for the first quarter of 2023, though that’s off an incomplete data set.
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