The labor market starts 2024 with a bang

The United States created an unexpectedly large number of jobs last month, a boon for American workers that shows the labor market remains remarkably strong after three years of expansion.

Employers In January, 353,000 jobs were added on a seasonally adjusted basis, the Ministry of Labor reported Friday, the unemployment rate remained at 3.7 percent.

The report also put an even brighter gloss on job growth for 2023, including revisions that added more than 100,000 to the figure previously tallied for December. All told, employers added 3.1 million jobs last year, more than the 2.7 million initially reported.

After losing 14 percent of the country's jobs early in the Covid-19 pandemic, the endurance of the labor market despite aggressive interest rate hikes has caught economists off guard.

“I think everyone is surprised at the strength of it,” said Sara Rutledge, an independent economic consultant. “It's almost like a 'pinch me' scenario.”

Ms. Rutledge helped prepare the most recent publications of the National Association for Business Economics member surveyin which optimism rose that the country would avoid a recession – appropriate for a turnaround in measure of consumer sentiment now that inflation has decreased.

The number of additional jobs in January, which is almost double what forecasters expected, reflects the equally surprising strength of the gross domestic product readings for the fourth quarter of 2023. It is also likely to reflect the patient approach of the Federal Reserve policy to strengthen interest rates, given the risk that interest rates will rise. wages could push prices up faster.

Federal Reserve Chairman Jerome Powell signaled this week that rate cuts would not begin until May, citing a desire to see more evidence that inflation is returning to its target.

“The fact that this has now been below 4 percent for two years in a row is just a very clear and reliable signal that this is not just a tight labor market, but a reliably and persistently tight labor market,” said Jared Bernstein, president of the White House Council. House Council of Economic Advisors.

January's gains were also broader than other recent reports, with professional and business services growing at an accelerated pace to 74,000 jobs, while health care added 70,000. The only major sector to lay off workers was mining and logging.

The average hourly wage also grew quickly, by 0.6 percent compared to December.

Still, analysts cautioned against looking too much into the month's overall gains, given recent volatility in initial survey estimates. For example, last January was much stronger than the annual average. And the latest report also contains a few oddities.

The survey window was interrupted by bone-chilling cold and snowstorms, which potentially shortened the workweek and increased hourly wages. Also, the addition of so many relatively well-paid white-collar workers could have raised the average. Hotels and restaurants, where wages are lower, are losing a few thousand jobs.

Agron Nicaj, a US economist at banking and financial services firm MUFG, noted that the number of job openings in professional and business services has risen in recent months. That could mean the January surge will be short-lived, especially given the latest report from outplacement firm Challenger, Gray & Christmas which showed that Layoff announcements have increased dramatically in the past month after a quiet fifteen minutes.

“I wouldn't expect any new acceleration because of the relationship with the industries that grew this month and the openings,” Mr. Nicaj said. “I think this month is a reflection of filling jobs that they couldn't fill.”

And yet it is clear that the new year has arrived in what has been an exceptionally good economy for many workers. Wages have been rising faster than in the past, and strong increases in productivity over the past three quarters have kept those fatter paychecks from leading to higher prices. The number of open jobs still exceeds the number of people looking for a job, even as new immigrants and women have entered or re-entered the workforce in unexpected numbers.

This trend may continue if higher wages continue to keep people off the sidelines. The number of people who are not part of the working population and want a job has increased has risen sharply in recent monthsto 5.8 million, suggesting they could jump back in if the reward outweighed the cost of childcare or a long commute.

Over the past year, most of the gains have come from sectors that either took longer to recover from the pandemic – including hospitality and local governments – or have outsized momentum due to structural factors such as an aging population and pent-up housing demand. Construction companies have continued to hire even despite high interest rates, as homeowners with low mortgage rates generally remain stuck, leaving new homes as the only option for potential buyers.

Other categories that saw super-sized growth in 2021 and 2022, including transportation, warehousing and information technology, have reverted to pre-pandemic trends. Another handful of sectors, such as retail, were largely flat.

Among those who jumped from a declining industry to a more stable one is Galvin Moore, 33, who worked in information technology for a freight broker until last fall, when he noticed the trucking industry shrinking around him.

“It's not just about job security — it's also the fear that your own career growth will be limited by the industry,” said Moore, who is married with three children in suburban Houston. He left for a position at an oil and gas services company working on technologies such as geothermal energy and carbon capture. “They are also in growth mode,” Mr. Moore added, “it's just another phase of the cycle.”

The new gig also brought a 40 percent pay increase, which allowed him to start paying off his debts and think about purchasing a new home. “It's night and day,” Mr. Moore said.

Despite prominent layoff announcements at companies like UPS, Google and Microsoft, most employers are reluctant to part ways with employees, concerned about staff shortages when business picks up. Although the share of workers leaving their jobs has returned to normal levels after a surge in 2022, Americans appear comfortable enough with their financial future to continue spending.

That has led to spending sprees for services like travel agencies, which saw their revenues fall to near zero during the worst of the pandemic. While there are still a few thousand workers below 2019 levels, the American Society of Travel Advisors says the Bureau of Labor Statistics data does not reflect a wave of workers joining the industry as independent contractors and often work part-time to supplement other jobs.

Kareem George, who runs a 10-person agency near Detroit that designs custom vacations, said his bookings were 20 percent above 2019 levels, with clients increasingly requesting luxury experiences such as luxury dinners and private tours.

“I think there is more confidence that they can plan longer term,” said Mr George, who expects to hire two more people in the coming year. “So they're not thinking so much about, 'I deserve it, I have to do it now,' but also about, 'I can also think about next year and the year after that.'”

Economists had expected the labor market to look more like its pre-pandemic itself in the coming months, without the massive job growth that followed the pandemic lockdowns. The latest figures may call that assessment into question.

Even the manufacturing sector, which has been in a mild recession for about a year, added 23,000 jobs. That reflects the optimism of late purchasing managers index for manufacturing, which rose unexpectedly last month. Timothy Fiore, chairman of the Institute for Supply Management committee overseeing the study, said this appeared to be the start of a turnaround, even if it is slow.

“Now we're starting to gain altitude,” Mr. Fiore said. “It's not a win for a fighter pilot; it is a win for a cargo plane.”

Jim Tankersley reporting contributed.