Job Growth Surged in January as Unemployment Fell to a 54-Year Low

The U.S. economy added 517,000 jobs last month, more than double expectations of 185,000

Line of Job Applicants

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The U.S. economy added more than double the number of jobs expected in January, pushing the unemployment rate to the lowest since 1969 and complicating the Federal Reserve’s effort to tame inflation.

A total of 517,000 positions were added last month, far exceeding projections of 185,000 and compared to an upwardly-revised 260,000 increase in December, the Bureau of Labor Statistics (BLS) said on Friday in its latest nonfarm payrolls report. January’s figures exceeded last year’s average monthly gain of 401,000, and the bureau also revised total job gains for 2022 to nearly 7.1 million, from 6.4 million.

The unemployment rate fell to 3.4%, its lowest since May of 1969, and compared with expectations of 3.6%. The report came after weekly jobless claims, which are more volatile than monthly figures, fell to the lowest since April, not far above an all-time low set in 1968. The labor force participation rate and employment-to-population ratio were little changed at 62.4% and 60.2%, respectively.

The S&P 500 Index dropped more than 1% as markets opened, amid concern the Fed may have to be more hawkish after raising rates by just 25 basis points at its latest meeting. Yields on 10-year Treasurys, which move inversely to prices, jumped 13 basis points to more than 3.5%.

The big job gains present a dilemma for Fed policymakers, who are trying to cool the labor market by raising interest rates. Officials could opt for a rate hike of 25 basis points at the May meeting of the Federal Open Market Committee (FOMC), and hold rates higher for longer afterward. Fed policymakers, including Chair Jerome Powell, have emphasized the need to bring inflation down to the central bank's target rate of 2%.

Key Takeaways

  • Job growth soared past expectations in January, with the U.S. economy adding 517,000 positions, more than double projections of 185,000
  • Monthly figures for 2022 were revised higher, bringing total job growth for the year up to 7.1 million
  • The unemployment rate fell to 3.4%, touching its lowest level in 54 years, and compared with expectations of 3.6%
  • Gains were led by the leisure and hospitality sector, followed by government, healthcare, and retail trade
  • Wage growth decelerated slightly, with annual wage growth falling to its lowest since August of 2021
  • Fed officials could consider a more hawkish policy stance ahead of the next FOMC meeting in March, and hold interest rates higher for longer

Job Gains by Sector

As has been the case throughout most of the pandemic recovery, leisure and hospitality added the most jobs, a total of 128,000, led by a 99,000 increase at food services and drinking places, and exceeding its monthly average of 89,000 in 2022. Despite sustained growth, employment in the sector remains 2.9% below its pre-pandemic peak.

Government positions rose by 74,000, while the healthcare sector added 58,000 jobs. Retail employment rose by 30,000, far exceeding last year's monthly average of 7,000. Other sectors recording gains included construction (+25,000), transportation and warehousing (+23,000), social assistance (+21,000), and manufacturing (+19,000). The energy sector, wholesale trade, information, and financial services recorded minor gains. None of the sectors recorded a loss in positions.

Wage Growth Remains Steady

Average hourly earnings for private sector workers rose 0.3% to $33.03, decelerating slightly from 0.4% in December. Year-over-year, earnings were up 4.4%, cooling from a 4.8% gain in December, and the smallest increase since August of 2021.

Article Sources
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  1. Bureau of Labor Statistics (BLS). “Employment Situation Summary: January 2023.”

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