US employers added 517,000 jobs in January, a surprisingly strong gain despite the Federal Reserve’s aggressive push to slow growth and tame inflation with higher interest rates.
The unemployment rate fell to 3.4 percent, the lowest level since 1969.
A government report on Friday painted a picture of a resilient labor market with low unemployment, relatively few layoffs and strong job creation, even as most economists forecast a recession approaching. While good for workers, continued employer demand for labor has also helped accelerate wage growth and contributed to high inflation.
But the Fed’s inflation watchers may be somewhat reassured by January’s wage data: Average hourly wages rose 4.4 percent last month from a year earlier, slower than December’s 4.8 percent year-over-year increase. And from December to January, wages rose 0.3 percent, below the previous month’s 0.4 percent increase.
On top of the huge job growth it reported in January, the government on Friday also revised its estimate of employment gains in November and December by a total of 71,000.
More Americans also entered the workforce last month. The share of adults who either had a job or were looking for one, known as the labor force participation rate, rose to 62.4 percent. That’s the highest level since March, though it’s still well below pre-pandemic numbers.
January’s job gains far outpaced December’s total of 260,000 and extended a streak of strong employment gains that have fueled Fed concerns about inflationary pressures. The US central bank has raised its key interest rate eight times since March to try to rein in inflation, which hit a four-decade high last year but has since slowed.
Companies are still looking for more workers and are holding on tight to the ones they have. Aside from some high-profile layoffs at big tech companies like Microsoft, Google and Amazon, most workers enjoy an unusual level of job security despite fears of a recession.
For all of 2022, the economy added a staggering average of 375,000 jobs per month. That was a strong enough pace to contribute to the painful inflation Americans experienced, the worst such hit in 40 years. A tight labor market tends to put upward pressure on wages, and higher wages fuel inflation.
The Fed — hoping to cool the labor market, the economy and inflation — has been steadily raising borrowing rates, most recently on Wednesday. The annual measure of consumer inflation has declined steadily since a peak of 9.1 percent in June. But at 6.5 percent in December, inflation remains well above the Fed’s 2 percent target, prompting central bank policymakers to reiterate their intent to keep raising borrowing rates for at least another few months.
The Fed aims to achieve a “soft landing,” a pullback in the economy that is enough to tame high inflation without triggering a recession. Policymakers hope that employers can slow wage increases and inflationary pressures by reducing job creation, but not necessarily by laying off large numbers of employees.
But the resilience of the labor market does not make this expected outcome any easier. On Wednesday, the Labor Department reported that employers posted 11 million job openings in December, an unexpected jump from 10.4 million in November and the most since July. There are now about two job openings, on average, for every unemployed American.
The Labor Department’s monthly layoffs have been below 1.5 million for 21 consecutive months. By 2021, the number had never fallen this low in records dating back two decades.
Another sign that workers are benefiting from unusual job security is the weekly number of people filing for unemployment benefits. That figure is a proxy for layoffs, the one economists track to gauge where the labor market might be headed. The government said on Thursday that the number of jobless claims last week fell to its lowest level since April.
The pace of jobless claims has remained at record lows despite a steady stream of headline-grabbing layoffs. Facebook parent Meta is cutting 11,000 jobs, Amazon 18,000, Microsoft 10,000 and Google 12,000. Some economists suspect that many of the laid-off workers may not be showing up on the unemployment line because they can still easily find new jobs.