The U.S. economy added more than half a million new jobs last month, pushing unemployment to the lowest level in decades despite the Federal Reserve’s efforts to raise rates to fight inflation.
US payrolls increased by 517,000 for January, nearly double December’s total and nearly triple the consensus forecast of 185,000. The state’s unemployment rate, at 3.4 percent, is now the lowest in 53 years.
The numbers, which ended a five-month streak in which job growth declined, prompted a selloff in bonds as investors reassessed whether the Fed would keep interest rates on hold longer to curb inflation.
“Today’s data shows a strengthening labor market, not a weakening labor market,” said Eric Winograd, chief U.S. economist at AllianceBernstein.
The Fed has warned investors that it is wrong to expect interest rate cuts too quickly, although this week it moved to a 0.25 percent increase – lower than the 0.5 and 0.75 percent increases in 2022.
“Supposedly [for the Fed] to cut rates during the summer, because of the price market, you not only have to reduce inflation but you also have to have a cold labor market,” added Winograd.
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The central bank still hopes it will be able to lower inflation to its 2 percent target without causing serious disruption to the labor market in the world’s largest economy.
But the extent to which the January hirings exceeded forecasts led investors to sell the two-year Treasury, which tends to track interest rate expectations. Yields rose 0.14 percentage points to 4.23 percent – the highest since mid-January.
The S&P 500 was down 0.2 percent in midday trading in New York, paring earlier losses.
Bureau of Labor Statistics data also shows that average hourly earnings increased at an annual rate of 4.4 percent per cent.
The BLS said January job gains were “widespread,” with the leisure and hospitality sector registering the largest increase, at 128,000 positions, while employment also grew in professional services, health care and in government jobs.
“The 517,000 strong gain in non-farm payrolls in January means that, despite most leading indicators of recession flashing red, the economy is clearly not close to recession as we have suspected,” said Andrew Hunter in Capital Economics.
The BLS also announced upward revisions to past data. Between March 2021 and March 2022, 568,000 more jobs were created than previously reported. November and December figures were also revised higher, with a combined 71,000 positions.
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After the Fed’s meeting this week, which took the federal funds rate in a range between 4.50 percent and 4.75 percent, chairman Jay Powell struck an optimistic note about the economic outlook. Speculation that the central bank is closer to ending its rate hike campaign earlier than previously signaled.
But he also warned that the “disinflation process” was still in its “initial stage” and price pressures remained strong, especially related to the “very tight” labor market.
New figures show an increase in job vacancies for December, with the number of vacancies rising to 11 million. Jobless claims also fell last week to the lowest level in nine months.
However, wage growth has slowed, and companies have begun to cut labor costs, by reducing working hours and laying off temporary workers.
In December, the labor force participation rate, which tracks the number of Americans working or looking for work, remained below the pre-pandemic level, at 62.4 percent.