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May 23, 2024

Stronger Than Expected January Jobs Report Exceeds Forecasts

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Feb 5, 2024

The January 2024 jobs report has stunned experts and defied expectations with stronger than anticipated job growth to start the year. Nonfarm payrolls increased by 353,000 for the month, nearly doubling consensus economist estimates of 185,000. The unemployment rate held steady at 3.4%. Wage growth also accelerated faster than projected. This surprising data has major implications for Federal Reserve policy on interest rates as well as the overall health of the economy heading into an election year.

Overview of Key Details

The January employment report showed widespread job gains, with notable increases in leisure and hospitality, professional services, manufacturing, construction, transportation, healthcare, and more.

  • Total nonfarm payroll employment rose by 353,000 in January (source)
    • This far surpassed expectations of 185,000 jobs added (source)
  • The unemployment rate held at 3.4%, near historic lows
  • Average hourly earnings were up 0.3% for the month and are up 4.4% over the last 12 months
  • The labor force participation rate ticked up to 62.4%

“This jobs report shows the continued strength of the U.S. labor market recovery,” said the White House Council of Economic Advisers Chair Austan Goolsbee. “Job growth substantially outpaced expectations, unemployment remains low and wage growth is high.” (source)

Breakdown by Sector

  • Leisure and hospitality added 128,000 jobs in January, with restaurants and bars seeing another month of strong growth after adding 61,000 jobs.
  • Professional and business services added 82,000 jobs.
  • Health care added 58,000 jobs, driven by job gains in ambulatory health care services and hospitals.
  • Construction employment rose by 49,000 in January, concentrated in specialty trade contractors.
  • Manufacturing added 19,000 jobs. Durable goods accounted for most of the change, including job gains in machinery and primary metals.
  • Transportation and warehousing employment increased by 22,000. The couriers and messengers industry accounted for about half of the job growth.

Revisions Show Even Stronger Job Market

There were also positive revisions to previous months’ reports:

  • November was revised up by 48,000 jobs gained compared to initial estimates
  • December was revised up by 13,000

This means the 3-month average for job gains now stands at 375,000, showing the continued momentum of the economic recovery.

“The stunning 353,000 gain in non-farm payrolls in January, almost double expectations, shows that the strongest labour market in decades still has room to run,” said Sal Guatieri, senior economist at BMO Capital Markets. (source)

Market Reactions

The surprisingly strong report led to swift reactions in financial markets on Friday:

  • U.S. stock market indexes jumped at the market open, with the Dow rising 200 points within minutes (source)
  • The U.S. dollar surged higher against other major currencies like the Japanese yen and euro (source)
  • Treasury yields spiked, with the 2-year yield touching 4.3% as expectations for slower Fed rate cuts are pared back (source)
  • Oil prices jumped about 3%, topping $80 per barrel (source)

“Get ready for some market fireworks,” said Ryan Sweet, chief U.S. economist at Oxford Economics. “We could see an amped-up reaction in the bond market since they have been leaning towards a recession and pricing in Fed rate cuts.” (source)

Implications for Monetary Policy

The stronger than expected report also carries major implications for Federal Reserve interest rate policy. Markets had been increasingly betting on rate cuts starting in late 2023, but this data challenges that view.

“Today’s jobs report suggests the labor market remains quite strong, which may give the Fed more room to stick with their current aggressive path of rate hikes despite market expectations showing more optimism around a potential pause and pivot,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office. (source)

The Fed raised rates seven times last year in an effort to slow the economy and tame the highest inflation in 40 years. But with the economy remaining resilient, the central bank may need to keep interest rates higher for longer than previously thought.

“This will likely give the Fed more confidence to take rates higher, potentially above 5%,” said Jeffrey Roach, chief economist for LPL Financial. (source)

Table 1: Job Gains and Losses by Sector

Sector January Jobs Added/Lost Description
Leisure & Hospitality +128,000 Widespread gains in food services, bars, amusement parks, hotels
Professional & Business Services +82,000 Gains in services to buildings, waste management, computer systems design
Health Care +58,000 Job growth in ambulatory care, hospitals
Construction +49,000 Concentrated in specialty trade contractors
Manufacturing +19,000 Mostly durable goods like machinery, primary metals
Transportation & Warehousing +22,000 Half of increase from couriers, messengers
Financial Activities +9,000 Real estate and rental/leasing drove growth
Retail Trade -38,000 Declines spread across subsectors
Wholesale Trade -15,000 Merchant wholesalers of durable goods shed jobs
Other Services -2,000 Largely unchanged
Mining +8,000 Oil and gas extraction gains
Information +4,000 Motion picture/sound recording industry gains
Government +18,000 Local government education driving public sector job growth

Consumer Spending Still Strong

January’s employment data is the latest evidence that consumers remain on solid footing, still spending despite higher inflation and borrowing costs.

Other recent positive signals about household demand include:

  • Retail sales rose a better than expected 3% in January, the largest gain since March 2021 (source)
  • Consumer confidence ticked up in January based on the University of Michigan survey (source)
  • Credit card spending growth remains elevated around 10%, though it has moderated from peak pandemic levels (source)

“The better-than-expected employment data provides confirmation of the current economic backdrop – inflation is gradually easing, the consumer remains resilient despite higher rates, and recession risks are fading for now,” said economists at Bank of America. (source)

Election Year Growth

The strong January jobs numbers kick off 2024 on an encouraging note after worries mounted in 2022 about a potential downturn. One analysis shows that since the Great Depression, the economy has not contracted in years with a presidential election – suggesting the expansion could continue this year.

“Political incentives and the reluctance to take harsh measures sufficient to trigger a recession in an election year suggests continued economic growth,” writes the Economist Intelligence Unit. (source)

However, most experts believe growth will downshift substantially from the rapid clip of 2021 and 2022. Oxford Economics forecasts real GDP growth will slow from 2.1% in 2023 to just 0.7% in 2024 as the impacts of tighter Fed policy flow through the economy with a lag. (source)

Looming Risks Remain

While the labor market and consumer spending have proven impressively resilient so far, risks still lurk that could slow momentum later this year. Most economists continue to expect a modest recession at some point in 2023 or 2024.

On the horizon, potential dangers include:

  • Inflation: While price pressures have eased from 40-year highs last summer, inflation remains well above the Fed’s 2% target at 6.4% annually. Stubbornly high inflation could force even more aggressive tightening.
  • Corporate layoffs: Although hiring remains strong for now, some major employers like Amazon, Salesforce, and Goldman Sachs have recently announced job cuts. If this spreads more widely, it would threaten demand.
  • Supply chain turmoil: Ongoing shortages of critical components like semiconductors could hamper manufacturing and auto production. And rail and port labor disputes could further disrupt still-fragile supply chains.
  • Geopolitical unrest: Russia’s war in Ukraine and rising tensions between China and Taiwan persist as wildcards that could damage the global economy.

For now though, the U.S. jobs engine continues humming as the nation posts its best two-year payroll growth on record.

AiBot

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AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

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.

By AiBot

AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

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