Job growth soared past expectations in January and wages rose faster than inflation, exhibiting more strength at the start of an election year in which the economy could be a huge factor.
The U.S. economy added 353,000 jobs last month, according to Labor Department data released Friday, about double what economists were expecting in different forecasts. The unemployment rate held steady at 3.7 percent.
Wages on nonfarm payrolls rose by 0.6 percent to $34.55, double the monthly pace of headline inflation in December.
Annual wage growth ticked up to 4.47 percent, still considerably higher than the 3.5-percent growth many economists think is in keeping with the Federal Reserve’s 2-percent inflation target.
Upside surprises in the labor market have been a hallmark of the post-pandemic economy, and Friday’s numbers from the Labor Department continue that trend.
Despite consistently strong hiring and wage growth, inflation in the consumer price index (CPI) has fallen from a high around 9 percent in 2022 to 3.4 percent in December.
Here are five big takeaways from the January jobs report.
The labor market shows little sign of cooling
The January jobs report indicates the labor market isn’t cooling under the weight of Fed rate hikes as much as many economists had expected it to.
Substantial upward revisions for November and December are more evidence that interest rate increases by the Fed, which are designed to slow the economy in response to inflation, have done little to weaken the job market.
The December jobs gain was revised up to 333,000 from 216,000, and November job growth was revised to 182,000 from 173,000 as reported in January, adding 126,000 more jobs to 2023’s gains.
“There is simply no way that 350,000 job gains in a month is consistent with a further cooling of the labor market. This elevates the risk that nominal wage growth will not fall back to levels consistent with reaching the inflation target on a sustained basis, particularly as the labor force participation rate refuses to rise any further,” Brian Coulton, Fitch Ratings economist, wrote in a Friday commentary.
Policy groups advocating for greater racial and demographic fairness in the economy noted January job growth in health care, retail and business services, specifically.
“Take a deep look at the areas of our economy that saw job growth in January: professional and business services, health care, retail and social assistance,” Marisa Calderon, president of Prosperity Now, said in a statement.
“These occupations attract many workers from communities of color and under-served populations. Continued gains in these jobs are a blueprint for eliminating the country’s racial and ethnic income inequality,” she said.
Fed rate cuts will likely be pushed back
The strength of the January labor market suggests to many market commentators that anticipated rate cuts by the Fed will be delayed.
“The dramatic upside surprise to both jobs and wage growth means that a March rate cut must be off the table now, and a May cut is also now potentially on ice,” Seema Shah, strategist with Principal Asset Management, wrote in an analysis.
“Certainly, with this kind of number, the six or seven rate cuts that markets had been pricing in seems very offside,” she wrote.
The January numbers also call into question the timing of the so-called “soft landing,” in which the economy returns to steady growth without a serious recession or large increase in unemployment.
Some economists, including Treasury Secretary Janet Yellen, have said the soft landing has already arrived, while the International Monetary Fund has said it’s just on the horizon.
The latest gross domestic product (GDP) report from the Commerce Department, which showed GDP rising at a 3.3 percent annualized rate in the fourth quarter after jumping 4.9 percent in the third quarter of 2023, further suggests the economy has not yet “landed.”
More fuel for Biden’s economy pitch against Trump
President Biden and former President Trump have feuded over the economic records as both pivot toward their likely rematch in November.
Trump, aware that a humming economy in 2024 could hurt his chances of reelection, has accused Fed Chair Jerome Powell of having political motivations for cutting interest rates and stimulating business activity.
“I think he’s political,” Trump said in an interview recorded before the jobs report was released with Fox Business Network’s “Mornings with Maria.”
Despite the recent spate of strong economic data, Trump has predicted the economy will crash within the next 12 months while also attempting to claim credit for a record-breaking stock market rally.
Biden has largely brushed aside the stock market’s strong numbers to focus on robust job gains, falling inflation and rising real wages.
While Biden’s economic approval rating has been low, recent polling shows that Americans’ views of the economy are trending upward, with economic confidence indices from Gallup and Pew showing improvements across the past two months. Consumer sentiment has also shooting been shooting up, as measured by the University of Michigan.
Will Democrats keep up the pressure on the Fed to cut rates?
Democrats cheered on yet more higher-than-expected job growth Friday morning.
“Our economy continues to blow by expectations and propel us towards what naysayers claimed was impossible: an inclusive, sustainable recovery that didn’t sacrifice paychecks for growth,” Rep. Richard Neal (Mass.), top Democrat on the House Ways and Means Committee, boasted in a Friday statement.
But between the lines of Democrats’ enthusiasm are questions about whether the economy is still hovering above its intended path toward more regular growth. A less ambiguous soft landing scenario, which would more easily allow for rate cuts and victory speeches, may be preferable for incumbent Democrats.
“Considering today’s jobs report, particularly the higher-than-expected average hourly earnings, cutting rates prematurely in this economy could needlessly undermine the significant progress made on inflation,” Ivan Gruhl, co-chief investment officer at Avantax, cautioned in a commentary.
However, progressive economists are still doubling down on interest rate cuts and hoping central bankers will heed the call.
“High interest rates will only slow our clean energy transition and put families in more debt. Chair Powell must change his tune and cut rates in March,” Groundwork Collaborative research director Bilal Baydoun said in a Friday statement.
Recession fears recede further into the distance
The good news for Democrats is that recession fears seem even less warranted than they did earlier in the year.
A widely predicted recession in 2023, along with a surge in unemployment, failed to materialize, allowing Democrats to say boast of their economic record in the face of doubters.
“I was wrong about the slowdown and the recession. So was the entire forecasting fraternity,” Larry Kudlow, director of the White House National Economic Council under Trump, said Thursday on Fox Business Network.
Most market commentators simply abandoned their recession calls after they failed to materialize. While others pushed them back into 2024, the January jobs report pushes them further into the distance.
“The long awaited recession was pushed back once again, with our economy adding an incredible 353,000 jobs in January,” Ryan Detrick, a strategist at Carson Group, said in an analysis. “When the employment backdrop is this strong, you simply don’t see a recession.”
This story was updated at 2:30 p.m.