Job gains confirm a US economy exceeding expectations
Staff members at the Dominique Ansel Bakery in New York arrange pastries, Sept. 28, 2023. January’s strong U.S. jobs report signals an economy that has weathered Federal Reserve interest rate hikes, which were aimed at fighting inflation.
Seth Wenig/AP/File
Friday’s jobs report has added a rosy cast to an already brightening economic picture in the United States. Nonfarm employment rose by 353,000 last month, almost double what economists had predicted. The report suggests that the economy is growing steadily as fears of recession, so prevalent a year ago, continue to fade. The next question is what will happen to interest rates.
On Wednesday, the Federal Reserve signaled that it was done raising interest rates. Many economists expect the first rate cut in March, but the strong jobs report may now push that to a later date.
The Labor Department also revised upward job gains in previous months, especially December, suggesting that job growth may be accelerating. Job gains in January were strong across the board, from business and professional services to retail positions.
Why We Wrote This
Americans are well aware that inflation hit hard after the pandemic. The latest numbers show an increasingly positive narrative: decelerating inflation, no recession in sight, and surprisingly strong job growth.
Even with high interest rates, unemployment remains at a low of 3.7%, marking two years that the jobless number has been below 4%, the longest span since 1968.
The job numbers aren’t universally positive. January saw a dip in the average hours people are working, which can be a sign of cooling in the economy, according to the Labor Department’s survey of employers. The department’s other monthly job survey, of households, showed a decline of 31,000 jobs rather than an increase. (The two surveys don’t always match, but each provides useful signals.) And the ratio of people employed to the overall population remains below pre-pandemic levels.
One of the economy’s weaker areas is housing. And the longer interest rates stay high, the more expensive housing becomes, especially for young people trying to buy their first home. A recent Bloomberg report suggests that almost half of people ages 18 to 29 still live at home with parents, mostly due to rising housing costs.
The Fed is keeping a close eye on inflation, which has come down dramatically since late 2022 when it peaked at 9.1%, a 40-year high. The rate fell to 3.4% in December, still above the Fed’s target of a 2% annual rate.
Some economists worry that wage gains can fuel inflation. In January, wages rose at an annual 4.5%, a strong bounce due in part to the ratification of United Auto Workers contracts in December. That means average pay growth is outpacing inflation at present.