The US added 517,000 jobs in January, according to new data from the US Bureau of Labor Statistics. The unemployment rate fell to a nearly 53-year low at 3.4%.
This beat expectations for the US to add 185,000 jobs and for the unemployment rate to rise to 3.6%, according to economists polled by FactSet. Meanwhile, average hourly earnings rose by a modest .3% in January, after rising by .4% in December.
The data is consistent with initial unemployment claims, which were at a nine-month low at 183,000 in January. Despite a steady stream of layoff announcements from employers, the overall labor market remains surprisingly resilient, as those workers aren’t spending a long time unemployed.
The car industry and information industry lost 6,500 and 5,000 jobs respectively. The auto industry’s decline is in large part because of the drop in car prices caused by supply chain snags. The information sector includes technology and media, both of which are sensitive to the whims of the stock market.
Will the Fed just keep raising rates?
The data contradicts the view by the majority of forecasting firms and investment banks that the US would be entering a recession in the first quarter of 2023. Instead, these figures are likely going to further worry Federal Reserve officials about a reacceleration of inflation, said Skanda Amarnath, executive director of Employ America, a labor advocacy group.
The largest jobs addition was in leisure and hospitality, which added 128,000 positions. While goods prices have cooled off, Fed chair Jerome Powell said on Wednesday that the central bank is concerned about inflation in the services sector specifically.
The concern among economists is that Fed officials predicted in December that the US unemployment rate would reach 4.6% by the end of 2023. Given that the unemployment is now down to 3.4%, that would mean that the Fed would have to bring about a 1.2 percentage point rise in unemployment, which would send the US into a recession.
To avoid that scenario, Fed officials may need to abandon old ways of thinking, such as the Phillips Curve, which posits a tradeoff between unemployment and inflation.
Workers are fighting back
The data suggests that employers broadly aren’t panicking and laying off their workforces, even if a few employers are letting workers go.
Employers have also been so in need of workers for so long that they may be reticent to let go of staff they worked hard to get. Despite calls for a recession, the quits rate continues to be near historic highs, meaning that workers are still looking for and finding new jobs.
This doesn’t mean the labor market story for January 2023 is all good for workers. Fourth quarter data from the employment cost index showed that employers have been cutting back on raises and benefits for workers for the last several months.
