US jobs growth unexpectedly rebounded in January, as the economy continued to perform strongly despite the Federal Reserve’s efforts to damp down demand.
Employers in the world’s largest economy added 517,000 jobs in the first month of the year, nearly double December’s figure, which was revised up to 260,000. Economists had expected 185,000 positions to be added.
The unemployment rate fell to a historic low of 3.4 per cent. Average hourly earnings edged up another 0.3 per cent since December, translating to a 4.4 per cent annual pace.
US government debt extended a sell-off following the release of the data by the Bureau of Labour Statistics. The two-year treasury yield, which tends to move with interest rate expectations, was up 0.14 percentage points to 4.23 per cent – a big move that took yields back near highs hit earlier this week. The 10-year yield, which moves with economic growth expectations, rose 0.1 percentage point to 3.5 per cent, also within this week’s trading range.
The S&P 500 was down 0.8 per cent during early trading in New York on Friday.
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The payrolls data further highlighted the strength of the US employment market late last year, as jobs figures for November and December were revised higher by a combined 71,000 positions. The BLS also revised jobs growth from March 2021 to March 2022 higher by 506,000 positions, as part of an annual process to ensure data accuracy.
“The case for labour market weakness is itself a very weak one… Today’s data point to a labour market that is strengthening, not a labour market that is weakening,” said Eric Winograd, chief US economist at AllianceBernstein.
“In order [for the Federal Reserve] to cut rates over the summer, as the market is pricing, you not only need to get inflation down but you need to have the labour market to cool off as well,” he added.
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The jobs report comes as the Fed debates how much more it needs to tighten monetary policy to bring inflation back down to its longstanding 2 per cent target.
The US central bank this week switched back to a smaller pace of interest rate increases after a string of big moves last year, lifting the federal funds rate by a quarter of a percentage point to a new target range of 4.50 per cent to 4.75 per cent.
Speaking on Wednesday, Fed chair Jay Powell struck a more optimistic tone about the economic outlook and the central bank’s handle on what has been one of the worst inflation shocks in decades. That ignited speculation that the Fed is closer to ending its rate-rising campaign earlier than previously signalled.
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Despite acknowledging that the “disinflationary process” had begun, Mr Powell cautioned it was still in the “early stages” and that price pressures remained too intense, especially those linked to what he described as an “extremely tight” labour market.
Underscoring the strength of the labour market, job openings in December jumped again, bringing the total number of vacancies to 11 million. Unemployment claims also fell last week to their lowest level in nine months. Wage growth has ebbed, however, and companies have begun to cut back on labour costs, both by slashing hours and cutting temporary workers from their payrolls.
Mr Powell on Wednesday reiterated that there was still a “path” to bringing inflation under control without a painful economic downturn and excessive job losses, although he did note that a “softening” of the labour market would be necessary.
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With a worker shortage persisting, Mr Powell said that “this is not like the other business cycles in so many ways”. In December, the labour force participation rate, which tracks the number of Americans employed or searching for a job, held steady below its pre-pandemic level, at 62.4 per cent.
“The robust 517,000 gain in non-farm payrolls in January means that, despite most leading indicators of recession flashing red, the economy is clearly not as close to recession as we had suspected,” Andrew Hunter, senior US economist at Capital Economics, said.
Most economists polled by Bloomberg expect the US to tip into a recession this year and for the unemployment rate to rise to almost 5 per cent. – Copyright The Financial Times Limited 2023