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Economy Adds 517,000 Jobs in January, More Than Double Estimates

Employers added a staggering 517,000 jobs in January in the first sign of how the labor market might fare this year, with increases widespread across industries from leisure and hospitality to health care, the Labor Department reported on Friday.

The number was well beyond the wildest expectations, vastly exceeding consensus forecasts of a gain of 190,000. In December, an upwardly revised 260,000 jobs were added, but analysts have predicted a slowdown in job creation among notices of layoffs at big-name firms such as Google, Amazon, Microsoft and Meta.

However, some believe January’s reading should be received with a grain of salt, as it contains revisions that various economists believe make it difficult to use as an indication of trends, such as adjustments for population changes and industry classifications. Also, the number may have been skewed upward by the return of some striking workers.

“The report today announcing 517,000 jobs added in January once again shows the staying power of the jobs market,” said Bill Armstrong, president of recruiting at human resources technology company Safeguard Global. “The number of job openings, which also increased significantly last month, leaves us with nearly two open jobs for every candidate.

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“While we have seen many reported layoffs in the tech industry, there are other segments that are continuing to thrive,” Armstrong added. “We continue to see a lot of activity in health care and hospitality, for example. Despite the amount of economic uncertainty, the competition for hiring talented workers remains strong.

The January number will add fuel to the debate over whether the economy is entering a recession this year, and also if the Federal Reserve will decide to pause or reverse its aggressive campaign of raising interest rates to combat inflation.

Wages, meanwhile, rose 0.3% in January and are now running at an annual rate of 4.4%, down from 4.6% in December. That was in line with estimates.

The unemployment rate ticked down to 3.4%, the lowest level since 1969.

“As most components of inflation are cooling, all eyes are on the stubbornly hot services sector,” First American Deputy Chief Economist Odeta Kushi said Friday morning. “Services inflation is still increasing, and labor is the sector’s main input. That is why the Fed is paying close attention to service sector wage growth, which has been growing faster than the overall rate of wage growth, leading to fears of a wage-price spiral.”

But, Kushi added, “the good news is that service sector wage growth is now decelerating. Yearly growth in average hourly earnings for service employees declined from a peak of 5.7 percent in March to 4.6 percent in December.

Overall, the labor market is continuing to register strong job gains while also limited unemployment. On Thursday, the government reported that first-time claims for weekly unemployment fell last week to 183,000 and have been below 200,000 in recent weeks.

“It’s fair to say the labor market has defied expectations,” says Angelo Kourkafas, investment strategist at Edward Jones. “But we do have some contradictory data.”

On Wednesday, Federal Reserve Chairman Jerome Powell said it was still his “base case” that inflation could slow and the labor market remain healthy even as the economy slows under the weight of the central bank’s campaign of higher interest rates.

Recent data have shown inflation coming down, most notably in the goods sector of the economy, and a moderation in wage growth. And in the fourth quarter of 2022, the nation’s gross domestic product expanded at a 2.9% annual rate.

Still, notices of large layoffs at big tech firms have raised the specter of widespread cutbacks in employment. But that hasn’t happened yet and it may not materialize at all, experts say. The strength of the labor market has been a hallmark of the economy during the coronavirus pandemic even amid a smaller workforce.

The labor market “is a little bit tight, but it is headed back to normal,” says Curt Long, chief economist at the National Association of Federally-Insured Credit Unions. “As a whole, the labor market is coming back into balance.”

Dave Gilbertson, vice president at human resources company UKG, notes that “most people being let go are finding jobs within a month or so.”

That means the unemployed may not have to file for unemployment if they got normal severance packages, and would not show up in the government’s monthly labor data.

“Today’s closely watched jobs report gives a healthy reading on the jobs market. Hiring is solid and jobs are plentiful,” said James Neave, head of data science at Adzuna, an online job-search firm.

“On Adzuna, advertised job vacancies in the US tracked 9.3 million in January,” added Neave. “And, despite recession clouds looming, the job market still has the wind in its sails. Employees that want better pay to keep up with inflation should be aware that opportunities are there for the taking.

Even with the announced layoffs in the tech sector, the overall unemployment rate in the industry is still very low, at 1.8% in December, so the layoffs at large firms have opened up opportunities for small and medium-sized businesses to hire workers that a years ago were out of their reach, says Jim McCoy, senior vice president for enterprise solutions at ManpowerGroup.

“Our outplacement work, which is mostly tech, has not seen a significant uptick,” McCoy says.

The steady labor market and a slowing economy will help the Fed in its fight against inflation, says Morningstar in its latest economic outlook. However, the investment analysis firm still thinks a recession may be in the cards.

“Contrary to what many think, the question of whether a recession occurs is not very important given that any recession is likely to be short-lived,” Morningstar says. “We expect (gross domestic product) growth will bounce back starting in 2024 as the Fed pivots to easing monetary policy.”

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