US job growth unexpectedly jumps in January as economy adds 353,000 new positions

U.S. job growth unexpectedly surged in January, underscoring the resilience of the labor market even in the face of high interest rates and stubborn inflation.

Employers added 353,000 jobs in January, the Labor Department said in its monthly payroll report released Friday, easily topping the 180,000 gain forecast by Refinitiv economists. The unemployment rate held steady at 3.7%, against expectations for a slight increase.

Wage growth also accelerated last month, with average hourly earnings – a key measure of inflation – rising 0.6%, double what economists had expected. On an annual basis, wages rose 4.5% in January. However, that coincided with a drop in average hours worked, which fell by 0.2 hour last month to 34.1 hours.

THE NUMBER OF HIGH-PAYING JOBS IS DWINDLING

In another show of strength for the economy, the report contained sizable upward revisions to job growth during the previous two months. Gains for November and December were revised up by a total of 126,000 jobs to a respective 182,000 and 333,000, the government said, suggesting that the labor market is stronger than it previously appeared.

The surprisingly strong report paints a picture of a job market that has gone largely unscathed despite the Federal Reserve’s aggressive interest-rate hike campaign, but it also diminishes the odds of an imminent rate cut.

“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,” said Seema Shah, chief global strategist at Principal Asset Management. “Certainly, with this kind of number, the six or seven rate cuts that markets had been pricing in seems very offside.”

AMERICANS IN THESE STATES ARE GETTING A PAY RAISE THIS YEAR

The Federal Reserve signaled it is closely watching the report for evidence that the labor market is finally softening after months of solid job gains as policymakers try to ensure that inflation continues to ease. The consumer price index has cooled considerably in recent months but remains above the Fed’s preferred 2% target, despite 11 rate hikes in the span of 16 months.

Faster job growth and the unexpected uptick in wage gains complicate the U.S. central bank’s plans to start unwinding tighter monetary policy. Policymakers held interest rates steady at the conclusion of their two-day meeting on Wednesday and signaled that they are prepared to cut interest rates later this year.

“If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year,” Chair Jerome Powell told reporters during a post-meeting press conference in Washington, D.C. “But the economy has surprised forecasters in many ways since the pandemic, and ongoing progress toward our 2% inflation objective is not assured.”

Stock futures fell after the report dashed investors’ hopes for a March rate reduction, and called into doubt the prospect of a May cut. Just 17% of investors are currently pricing in a quarter-point cut in March, according to the CME Group’s FedWatch tool, which tracks trading.

Job gains were broad-based last month, with the biggest gains in professional and business services (74,000), health care (70,000), retail trade (45,200), government (36,000) and manufacturing (23,000).

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The labor market has remained historically tight over the past year, defying economists’ expectations for a slowdown. 

“So much for the cooling labor market,” said Robert Frick, corporate economist with Navy Federal Credit Union. “The best part of the blockbuster number is how widespread the hiring has become. . . .  This shows a growing labor market reflecting a broad-based economic expansion, and not just recoveries in a few sectors such as health care and government.”