The year opened with a bang as employers added 353,000 jobs in January, far exceeding the most optimistic of forecasts.
Job gains were fairly widespread with the strongest gains in professional and business services, health care, retail trade and social assistance.
Economists had expected a slowdown to around 185,000 new jobs following December’s upwardly revised 333,000 after the better-than-expected 216,000 estimate. Revisions also raised the November job number to 182,000 and also added 117,000 more jobs to December.
“We continue to see a post-pandemic rebalancing,” said Becky Frankiewicz, president and chief commercial officer of ManpowerGroup. “While hiring isn’t as strong as a year ago, it is better than pre-pandemic and has improved month-over-month.”
“We’re also seeing an expected post-holiday hangover in retail and logistics, balanced by increases in IT, finance, accounting and engineering,” she added. “Overall, more jobs are available now for each unemployed worker than there were before the pandemic, creating a stable environment for employers and employees.”
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The January number is at odds with other data out this week and reports from job site officials that suggest the labor market is slowing down.
Earlier this week, the government reported that job openings rose slightly at the end of 2023 while private payroll firm ADP saw a sharp decline in the number of new hires in January to 107,000 after December’s downwardly revised 158,000. Weekly unemployment claims, meanwhile, rose last week.
“The labor market is certainly cooling,” Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management, said ahead of the report. “The question is how much.”
January can be a volatile month for labor data. The government makes annual revisions to prior months and seasonality plays a role. The month is also typically one in which a large number of layoffs are announced as companies report their prior year earnings and plan for the upcoming year.
“I think January is not going to be a good barometer of what’s going to happen over the next 12 months,” says Amy Glaser, senior vice president at Adecco.
Glaser says hiring has been strong in the health care, hospitality and financial services industries. Health care is benefiting from demand for services aimed at the aging population, she says, while financial services is seeing a seasonal hiring boom related to tax season.
As for wages, Glaser says they are continuing to increase but that some of the big signing bonuses and incentives that characterized the pandemic-era labor market are gone. “Those massive increases for job hoppers are not happening anymore,” she says.
Chris Todd, CEO of hiring technology firm UKG, cautioned against taking too much from one month’s report. “I wouldn’t read too deeply into January’s BLS report,” he said.
“There were a couple of three-day weekends and a variety of storms that impacted parts of the country that aren’t used to dealing with winter storms,” Todd added. “Being transparent, this makes it hard for everyone, regardless of methodology, to accurately gauge job creation.
“However, looking at the last couple of months of data together, the outlook remains positive for employees,” he added. “There are still more jobs than there are people to fill them, yet businesses don’t feel nearly as understaffed as they did a couple of years ago.”
“Wage inflation has cooled like we predicted, but hiring managers are willing to pay top dollar when necessary to fill key roles and attract key skills,” Todd said.
The latest data will also cause consternation at the Federal Reserve, where policymakers are looking to a cooling of the labor market and a moderation in wage growth are both things the Federal Reserve is looking for before it becomes comfortable with the idea of lowering interest rates. Fed Chairman Jerome Powell and his colleagues held interest rates steady at the highest levels in two decades on Wednesday, but markets do expect the central bank to cut rates later this year.
“I think the labor market by many measures is at or nearing normal, but not totally back to normal,” Powell told reporters. “So, you know, job openings are not quite back to where they were. Wages, or wage increases rather, are not quite back to where they – to where they would need to be in the longer run.”
Economists point out the labor market’s gains have also been concentrated in a few sectors, at least until the January report.
“It’s also narrowing,” says Julia Pollak, chief economist at ZipRecruiter, adding that “92% of hiring is in just three sectors – health care, government and hospitality.”
Schutte says the Fed faces a delicate balancing act between acting too soon to cut rates and overheating the economy and waiting until unemployment has risen too much.
“The risk of overcooling is real,” he said.
But it is hard to contain the enthusiasm that a strong jobs report along with moderating inflation is good for most Americans.
“A blockbuster payroll report with 350,000 jobs created, well above expectations, with unemployment staying at 3.7%, is confirmation that the economy remains strong,” said Sonu Varghese, global macro strategist at Carson Group. “This report also reduces the odds of a rate cut in March, and pushes the timing of the first rate cut to May.”
