Blockbuster US jobs report turns slowdown narrative on its head

For months, jobs data have pointed to a gradually cooling labor market across the U.S., which along with receding inflation helped fuel bets that the Federal Reserve would start cutting interest rates early in 2024.

Friday's blockbuster employment data turned that narrative upside down.

U.S. companies boosted payrolls in January by 353,000, the most in a year, according to a monthly Bureau of Labor Statistics report. December's hiring figure also received a hefty upward revision. Taken together, the numbers suggest a reacceleration that is likely to delay any rate cuts for the time being.

"It certainly justifies the Fed staying on hold," said Kathy Jones, Charles Schwab's chief fixed-income strategist. "The economy is strong enough to generate a high level of jobs."

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The report, which also contained annual benchmark revisions that adjusted hiring figures up throughout much of 2023, highlights a labor market that's been instrumental in powering consumer spending and keeping the economy on its expansion path.

Wage growth also surged — average hourly earnings rose 0.6% on the month, or 4.5% from a year earlier — though likely because of weather-related absences when data were collected in mid-January that affected the calculations.

The survey week corresponded with a stretch of severe winter weather that roiled economic activity across a number of U.S. regions. It triggered freezing temperatures in Texas, heavy snow in the Midwest and flash flooding in the Northeast.

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While that effect is likely to reverse in the February numbers, the disruption still delays confirmation of a further moderation in wage growth that would give central bankers more confidence that it's time to start easing monetary policy.

"The labor market remains strong," Fed Chair Jerome Powell told reporters Wednesday after the central bank left interest rates unchanged at two-decade highs. "We think we can and should take advantage of that and be careful as we approach that question of when to begin to dial back restrictions."

Recent high-profile job cuts from companies including UPS may signal that demand for workers will cool in the coming months. But even as news of tens of thousands of layoffs grab everyone's attention, the overall numbers remain subdued in an economy with more than 150 million workers.

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The January job-cuts announcements compiled by Challenger, Gray and Christmas, at 82,300, were still lower than the 102,000 announced a year earlier. There's also plenty of evidence in other reports, including vacancies and the ADP private payroll data, that employers are still hiring.

For President Joe Biden, who's trying to convince American voters that the economy is strong heading into the presidential election in November, the numbers will come as welcome news.

Unemployment held at 3.7% for a third straight month, while the participation rate — the share of the population that is working or looking for work — held at 62.5%. Women entering the workforce helped offset a decline in men's participation.

The jobs report is made up of two surveys — one of businesses and the other of households. This release included an annual update to the establishment survey that produces the payrolls figures. The benchmark revision painted a slightly better picture of monthly job gains in the second half of the year.

The update also included adjustments to the population controls used in the household survey data, which means the participation and unemployment figures aren't directly comparable to the previous month.