The January 2024 jobs report released by the Labor Department on Friday showed a huge upside surprise, with nonfarm payrolls jumping by 353,000 compared to expectations for a 185,000 gain. The unemployment rate ticked up slightly to 3.4% from 3.5% in December. Wage growth was also strong, as average hourly earnings rose 0.3% for the month and were up 4.4% from a year earlier.
Key Details from the January Jobs Report
- 353,000 jobs added, nearly double expectations
- Unemployment rate edges up to 3.4%
- Labor force participation rate rises to 62.4%
- Average hourly earnings increase 0.3% month-over-month and are up 4.4% year-over-year
- Leisure and hospitality sector leads job gains again with 128,000 new jobs
- Construction jobs increase by 25,000 even amid concerns over housing market
- Healthcare adds 58,000 jobs, blowing past recent slow growth
- Government employment jumps by 74,000, partly reflecting end of strike
- Revisions add 7,000 more jobs for November and December
In a nutshell, this was an extremely strong report that shows the labor market kicking off 2024 with impressive momentum despite recent high profile layoffs in tech and concerns over a slowing economy. The pace of job growth actually accelerated from December, defying predictions of a hiring pullback. And wage growth remains historically high as well.
Surge in Payrolls Catches Economists Off Guard
Economists were stunned by the magnitude of the payroll gains in January following two straight months of layoff announcements from major tech companies like Amazon, Microsoft, and Google.
Most experts predicted job growth would downshift in January to around 185,000 as the effects of those layoffs filtered through. Some of the most bearish forecasts saw payrolls rising by only 110,000.
Instead, employers went on a shocking hiring surge right out of the gate in 2024.
Austan Goolsbee, President Biden’s top economic adviser, acknowledged his surprise at the strength of the report:
“This is a whopper of a jobs report when most were predicting a slowdown. While we expected solid job gains, this blows away even the most optimistic predictions and shows employers plowing ahead with hiring even in the face of growing economic uncertainty.”
The upside surprise puts job growth well above the pace needed to keep up with population growth and provide opportunities for new entrants to the labor force.
This table shows the actual job gains versus economists’ forecasts:
|Average Hourly Earnings MoM
|Average Hourly Earnings YoY
Leisure & Hospitality Leads the Way Again
For the second month in a row, the leisure and hospitality sector posted the biggest job gains. Payrolls increased by 128,000 in January on top of a revised gain of 99,000 in December.
The surge highlights continued strong demand for travel, hotels, restaurants and recreation. It also suggests consumers are still spending freely on experiences and services despite inflation cutting into their budgets.
Other major areas of job growth were in health care, government, and construction.
Healthcare hiring has been constrained recently amid labor shortages and burnout among healthcare workers emerging from the pandemic. But payrolls jumped by 58,000 in January, powered by demand for ambulatory services and nursing facilities.
Government employment surged by 74,000, though this partly reflects public school employees returning to work after strikes tempered hiring in December.
And homebuilding and specialty contractors boosted construction payrolls by 25,000 even with the housing market cooling. This indicates the huge backlog of unfinished building projects is still supporting construction employment.
The only major industry that cut jobs was manufacturing, which shed 22,000 workers. That decline was driven by manufacturers of computers, appliances, transportation equipment, furniture and other durable goods.
Strong Report Sets Up Clash Over Policy Implications
The blockbuster jobs data will have major implications for Fed policy and sets the stage for controversy over how to interpret the report.
Members of Congress and governors facing reelection campaigns will likely use the jobs numbers as a sign of the economy’s resilience. They can point to the hiring surge as evidence their policies are working.
Yet the report is a double-edged sword. While job growth is unambiguously good news, the hot labor market will make the Fed’s inflation fight even harder. Strong wage gains and job growth suggest demand is still running too hot in the economy, spurring concerns over reaccelerating price increases.
Most experts now expect the report to lock in additional Fed rate hikes rather than encourage rate cuts which some policymakers floated earlier. Markets quickly repriced expectations for rates following the jobs news.
But the political spin wars are bound to feature contradictory takes on whether the data is good or bad for average Americans’ pocketbooks. Voters will have to decide whose policies they trust most to balance growth and inflation.
Risks Remain Despite Momentum in Labor Market
While January’s jobs numbers smashed expectations, some noted a few reasons for caution.
The unemployment rate ticked slightly higher and could rise further if tech industry layoffs spread or the economy slows faster than anticipated.
There are also early signs that quits are coming down from record levels as fewer workers voluntarily leave their jobs. That could indicate dimming confidence in the labor market outlook.
And much uncertainty still swirls around how severe the expected economic slowdown will be in 2023. Most forecasters see GDP growth cooling substantially, though opinions diverge around whether an outright downturn is ahead.
If consumer spending falters in the face of high inflation and companies pull back on investing and hiring, job gains seem destined to eventually downshift. But the January report shows the labor market enters the year retaining far more momentum than believed.
The next few monthly reports will be critical in determining whether the surprising January strength persists or proves short-lived. All eyes will be on the February data when it lands in early March.
For now, however, the jobs data cements a picture of an economy and labor market hanging tough despite the aggressive Fed policy tightening campaign of 2022. Employers are defying dampened spirits and predictions of an imminent recession by adding workers at the fastest pace in nearly a year to start 2024.
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