The U.S. job market defied expectations in January, with 517,000 jobs added to the economy—the biggest increase in nonfarm payrolls since July 2022. The unemployment rate dropped to 3.4%, a rate not seen since 1969, and significantly lower than the expected 3.6%.
The Federal Reserve has been attempting to slow the economy and bring down inflation since March 2022, when it began a rate hike campaign. So far, wage growth has slowed and inflation has fallen faster than the Fed expected—without any of the increased unemployment economists thought would happen as a consequence.
Average hourly earnings rose by 0.3%, and on an annual basis, wages rose 4.4% in January—down slightly from 4.6% in December. The percentage of people in the labor force rose to 62.4%.
The surge in job creation comes despite the Federal Reserve's efforts to weaken the labor market. The Fed raised its benchmark interest rate eight times since March 2022, most recently with a 0.25% increase on Wednesday.
CME Group data showed that traders were more confident that the Federal Reserve would vote in favor of a 0.25% interest rate increase at the March meeting, with the probability of this happening rising to 94.5%. Experts believe there will be an additional rise in the central bank's benchmark funds rate in either May or June, with a target range of 5%-5.25%.
The average hourly earnings increased by 0.3% in January, a slight decrease from the 0.4% revision upwardly reported in December. Hourly earnings have increased by 4.4% since the start of the year in January.
The number of jobs added during the months of November and December were revised upwards by a total of 71,000. The revisions from November were from 256,000 to 290,000 and from 223,000 to 260,000.
The leisure and hospitality sector, which saw one of the greatest impacts of the pandemic, continued its positive trend of recovery in January, adding 128,000 jobs. The sector's employment is still 495,000 jobs or 2.9% lower than it was in February 2020 prior to the pandemic, yet the gap is gradually decreasing.
Professional and business services (82,000), government (74,000) and health care (58,000) saw significant gains, as did retail (30,000) and construction (25,000).
0. “Economy Adds 517000 Jobs in January, More Than Double Estimates” U.S. News & World Report, 3 Feb. 2023, https://www.usnews.com/news/economy/articles/2023-02-03/economy-adds-517-000-jobs-in-january-more-than-double-estimates
1. “Labor Market Added 517,000 Jobs In January—Unemployment Rate Falls To 54-Year Low Of 3.4%” Forbes, 3 Feb. 2023, https://www.forbes.com/sites/jonathanponciano/2023/02/03/jobs-report-january/
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6. “Jobs report shows increase of 517,000 in January, crushing estimates, as unemployment rate hit 53-year low” CNBC, 3 Feb. 2023, https://www.cnbc.com/2023/02/03/jobs-report-january-2023-.html
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8. “U.S. employers added a whopping 517,000 jobs in January” NPR, 3 Feb. 2023, https://www.npr.org/2023/02/03/1153912911/jobs-labor-unemployment-wages-inflation-federal-reserve
9. “U.S. jobs report January: 517,000 jobs added despite recession fears” USA TODAY, 3 Feb. 2023, https://www.usatoday.com/story/money/economy/2023/02/03/january-jobs-report-today-unemployment-rate/11170452002