US sees surprise hiring surge as unemployment edges down
Feb 04, 2023 - 03:04 AM
WASHINGTON — US job gains surged unexpectedly last month as unemployment slipped to its lowest rate in more than five decades, government data showed Friday, indicating strength in the labor market despite efforts to ease economic activity.
This could prove concerning to policymakers, with risks that elevated wages could feed into inflation.
While the US central bank has tempered its aggressive campaign to rein in prices on signs that the world’s biggest economy is cooling, the latest figures could steer it towards more interest rate hikes than expected.
The United States defied expectations to add 517,000 jobs in January, nearly double the December figure, after a five-month slowdown in hiring, said the Labor Department on Friday.
“Job growth was widespread, led by gains in leisure and hospitality, professional and business services, and health care,” the report added.
Employment in manufacturing and construction showed resilience as well, despite a slowdown in activity in both sectors.
The jobless rate edged down to 3.4 percent, a level last seen in 1969, according to government figures.
But wage growth slowed slightly with average hourly earnings rising by 0.3 percent to $33.03, down from December’s 0.4 percent increase.
Taken together, these figures suggest the labor market remains too hot for policymakers, with the hiring figure marking a spike from December’s 260,000 number.
US President Joe Biden on Friday cheered the strong job creation since he took office and noted that inflation was still cooling off. He pushed back against critics who, he says, suggest that “the only way to slow down inflation was to destroy jobs.”
“Today’s data makes crystal clear… these critics and cynics are wrong,” he told reporters, though conceding there remains more work to do.
No sign of softening
“The data show the economy is creating jobs at a rapid pace,” said Rubeela Farooqi of High Frequency Economics.
Job creation is showing “no sign of softening” she added, despite the Fed’s eight consecutive hikes to the benchmark lending rate, aimed at easing demand and bringing down costs.
“Wage growth has slowed, but it has not yet slowed enough for the Fed,” added Ian Shepherdson at Pantheon Macroeconomics.
The Federal Reserve has been closely eyeing the jobs market, with labor demand exceeding the supply of available workers and employers keen to retain staff they may have struggled to find during the pandemic.
While unemployment is typically seen to edge up as interest rates rise and borrowing costs go up, the jobless rate has hovered at historically low levels in recent months.
Wages are “still at a high level,” Fed Chair Jerome Powell told reporters Wednesday.
“They’re still at a level that’s… well above where they were before the pandemic,” he said. “It’s going to be reflected in our assessment of the outlook and that will be reflected in our policy over time.”
The central bank this week announced a smaller interest rate hike, fueling optimism that the Fed is approaching the end of its cycle of rate increases.
But Friday’s data could cast doubt on the situation.
“Without an adjustment in the labor market, the risk is that rates will move higher than anticipated,” Farooqi of High Frequency Economics said.
This could have repercussions on other areas, with interest-sensitive sectors such as housing already slumping on higher rates while retail sales have slowed.
“This all increases the chance of a harder landing by mid-year,” said Nationwide chief economist Kathy Bostjancic. She expects a moderate recession to start by around mid-year.
Shepherdson of Pantheon Macroeconomics added that “the Fed is more likely than not to hike (rates) in March, though we hope they don’t, given the lagged effect of their previous tightenings is still to come.”
A repeat of January’s surge is unlikely in the coming months, said Ryan Sweet of Oxford Economics, noting that employment growth is often higher than expected in the first month of the year.
“We still expect employment growth to slow markedly as the economy enters a recession in response to the Fed’s cumulative rate hikes,” he said.
He expects “outright job losses” in the second half of the year with joblessness rising modestly.
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