Employers in the US created 517,000 new jobs in January, an astounding number that may put pressure on the Federal Reserve to continue raising interest rates.
In spite of indications that the US economy is faltering and a recent wave of layoffs in the IT sector, the national employment rate dropped to only 3.4%, the lowest level since May 1969, indicating that the labor market is still very tight.
Although it increased to 62.4%, labor force participation is still far below pre-pandemic levels.
According to a press release from the Bureau of Labor Statistics, “Job growth was broad in January, driven by advances in leisure and hospitality, professional and business services, and health care.”
The feds said, “Employment also grew in government, largely reflecting the return of employees after a strike.”
The startling amount was revealed amid worries that the Fed’s most recent round of abrupt rate increases would lead to significant job losses. At the same time, pay growth slowed in January, which should allay Fed policymakers’ worries that the robust labor market would spur inflation.
When compared to the same month a year before, the average hourly wage increased in January by 4.4%. After increasing by 4.8% year over year in December, the number decreased. In comparison to the 0.4% rise from November to December, earnings climbed by 0.3% on a monthly basis from December to January.
Economists had predicted a mere 187,000 increase in payrolls in January prior to the announcement. The boost came after a 260,000-job gain in December. Expectations were for the jobless rate to be around 3.6%.
The positive outcome, according to President Biden, is evidence that his “economic strategy is succeeding.”
Following the release of the January employment data, US markets initially declined, with the broad-based S&P 500, the tech-heavy Nasdaq, and the Dow Jones Industrial Average all trading in the red. By late Friday morning, the Dow had recovered some of its early losses and was in the black.
Quincy Krosby, chief global strategist at LPL Financial, said: “The undoubtedly good data is what markets want for coming out of a recession, but not what you want to see when expectations for the conclusion of the Fed rate increase campaign are abruptly challenged by much better labor market.”
Investors who are concerned of the impending recession and have asked the Fed to suspend its battle against inflation may become more anxious as a result of the positive employment data. Although it was down from its decades-high peak in the middle of last year, inflation in December remained around 6.5%, which is still far more than the Fed’s 2% objective.
Ian Shepherdson, the senior economist at Pantheon Macroeconomics, said in a note to clients on Friday, “We now believe the Fed is more likely than not to raise in March.”
The Fed increased its benchmark interest rate earlier this week by a quarter of a percentage point, its eighth consecutive rise but the lowest in in a year. The Federal Open Market Committee, which sets interest rates, said it anticipated “ongoing rises” in rates when it meets again next month.
The “disinflation process” has started, according to Fed Chair Jerome Powell, but he emphasized that before authorities would contemplate a policy halt, they must first see further evidence of a persistent decline in prices.
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