A construction worker is seen in Miami on Jan. 5, 2024. U.S. employers added more jobs than expected in January including in the construction sector.
Joe Raedle/Getty Images
It’s Groundhog Day. And once again, the monthly jobs report has confounded forecasters.
U.S. employers added 353,000 jobs in January, according to a report from the Labor Department Friday. That’s far more than analysts were expecting.
The job market has held up remarkably well, despite the Federal Reserve’s effort to fight inflation with the highest interest rates in more than two decades.
The question is whether the Fed will see a shadow in the stronger-than-expected jobs market and extend our winter of elevated borrowing costs.
Policy makers might worry that such a strong labor market will keep prices higher for longer.
Here are four takeaways from Friday’s report.
Demand for workers is still extraordinarily strong
Nearly every industry added jobs last month. Health care added 70,000 jobs. Business services added 74,000. Even construction and manufacturing — two industries that typically feel the drag of higher interest rates — continued to hire in January.
What’s more, revised figures show job growth in November and December was stronger than initially reported.
Meanwhile, the unemployment rate held steady at a historically low 3.7%. It’s been under 4% for two full years now.
More people are joining the workforce
Helping to balance the strong demand for labor is a growing supply of available workers.
Many people who were sidelined during the pandemic have since joined or re-joined the workforce — thanks in part to the possibility of remote work.
Nearly 23% of employees teleworked or worked from home last month — more than double the rate before the pandemic.
The share of people in their prime working years who are working or looking for work in January rose to 83.3%.
Immigration has also rebounded. The foreign-born workforce grew 4.3% last year, while the native-born workforce was virtually flat.
“Those two forces have significantly lowered the temperature in the labor market,” said Federal Reserve Chair Jerome Powell this week. “It’s still a good labor market for wages and for finding a job. But it’s getting back into balance and that’s what we want to see.”
But the sizzling job market could delay a cut in interest rates
Powell said this week that he and his colleagues could start cutting interest rates this year if inflation continues to fall.
Powell cautioned, however, that a rate cut at the next Fed meeting in March is unlikely. It’s probably even more unlikely after this stronger-than-expected jobs report, which showed average wages in January rising 4.5% from a year ago.
Although rising wages have not been a big driver of inflation, wage gains at that level could make it hard to get inflation all the way down to the Fed’s target of 2%.
Before the jobs report, investors had been all but certain the Fed would cut interest rates by May. They’re less confident now.
Productivity gains could make rising wages less worrisome
Two other reports from the Labor Department this week show less upward pressure on wages and prices.
One report tracks the labor costs borne by employers last year. It showed a smaller increase in October, November and December than the previous quarter. This “employment cost index” is considered a more reliable guide to labor expenses than the monthly wage data.
A separate report showed that workers’ productivity rose by 3.2% in the fourth quarter. Rising productivity helps to offset rising wages, so employers can afford to pay more without raising prices.
“Productivity is the magic wand that keeps wages growing solidly without spiking inflation,” said Nela Richardson, chief economist at the payroll processing company ADP.
