Figures surpass expectations, reflecting a robust outlook
The US economy saw an employment blowout in January, according to figures released by the Bureau of Labor Statistics Friday.
Nonfarm payroll employment soared by 517,000 last month – the largest monthly gain since July 2022 – and the unemployment rate changed little at 3.4%.
The January jobs report beat analyst consensus, depicting a labor market with “considerably more momentum than we had expected given signs of weakening elsewhere in the economy,” said Nathaniel Drake, analytics associate at Fannie Mae’s Economic and Strategic Research Group.
Mortgage Bankers Association chief economist Mike Fratantoni agreed: “The pace of job growth had been trending down over the past six months, but January broke that trend. Recent data on unemployment insurance claims have indicated a stronger job market than the string of layoff announcements from the technology and financial sectors would suggest. Job growth of 517,000 in January, and a drop in the unemployment rate to 3.4%, put an exclamation point on the divergence between measures of economic activity and job market statistics.”
Still, Drake noted that the January figures are “heavily influenced by seasonal adjustments and that still-abnormal hiring and layoff patterns may be impacting the overall payroll number.
“While this may be responsible for the apparent bucking of the gradually decelerating net hiring trends over the past six months, it still appears that the labor market is on a robust footing, reducing the likelihood of a recession beginning in the first quarter.”
Wage growth slows
The strong job growth has also come with a slowdown in wage pressures, with the average hourly earnings for all employees on private nonfarm payrolls up by 10 cents, or 0.3%, to $33.03.
“Much of the job growth is concentrated in sectors like leisure and hospitality, which have struggled to fill job openings for much of the past year,” Fratantoni said. “The decline in wage growth to 4.4% may be reflecting some of this shift to sectors that typically are lower wage. However, slower wage growth in the service sector is the trend that Federal Reserve officials have been seeking, despite the persistent strength in the job market.
“Beyond the surprising hiring jump in January, employment numbers were revised up for 2022 by about half a million and were marked up for the last two months as well. As strong as we thought the job market was, it was even stronger.”
Mortgage jobs decline
However, mortgage jobs trailed the national figures. The January report showed that mortgage banking firms trimmed 47,000 full-time employees from their payrolls, compared to 2,500 layoffs in December.
“The economy looks to be bifurcated to begin 2023, with services performing far stronger than expected but more interest rate-sensitive sectors, such as manufacturing and housing, essentially already in recession,” Drake said. “On balance, the overall economy looks to be stronger than we anticipated.”
“With the job market this tight, the Federal Reserve and financial markets will remain even more focused on the inflation data,” Fratantoni added. “We expect another 25-basis-point increase in the federal funds target in March, but do anticipate that the unemployment rate, which does tend to be a lagging indicator, will increase through the course of the year.”
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