The US job market showed amazing resilience on Friday, almost tripling expectations and making all those recession forecasts look pretty silly.
Earlier this week, the consensus estimate among economists was that the US economy likely added about 185,000 jobs in January. That would have been a solid gain that’s still above pre-pandemic averages.
But the economy had other ideas and created more than half a million jobs in January.
Here are three key things to take away from Friday’s job report.
The headlines, which broke at 8:30 am ET Friday, left economists stunned: America added 517,000 jobs last month.
Instead, the unemployment rate, which was expected to rise slightly fell to 3.4% from 3.5%. It hasn’t been that low since the moon landing.
- After revisions, America added 4.8 million jobs last year. That’s 300,000 more than previously reported.
- Job gains were widespread, led by the leisure and hospitality sectors.
- Wages rose 4.4% year-on-year – higher than expected. (That’s still below the recent inflation reading of 6.5%, although inflation has been steadily declining since June.)
Bottom Line: Despite some high-profile layoffs in the tech and media sectors, the economy as a whole is thriving.
After a year in which a recession seemed imminent, many economists are now saying those forecasts were overly bleak.
“Any concerns that the economy is in or nearing recession should be completely quashed by these numbers,” Mark Zandi, chief economist at Moody’s Analytics, told CNN.
Much of this speculation has centered on the Federal Reserve’s monetary tightening aimed at driving inflation out of the economy. Such aggressive policies carry the risk of a recession as they tend to dampen corporate growth.
For now, the Fed’s actions don’t seem to have put out the fire in the jobs market.
“Last year included the biggest misreading of the economy of my life,” tweeted Economist Justin Wolfers on Friday. “Recession speech hit new highs despite the economy posting a job growth rate that any real economist will tell you as ‘BOOM’. ”
So what happened?
For one thing, the pandemic has destroyed many of the models economists have historically relied on to make their forecasts.
“My meta-theory of why so many people have been wrong about economics for so long is that many economists (and business journalists) fail to appreciate that sometimes good things happen,” Wolfers said.
What’s good news for workers isn’t always good news for Wall Street. Stocks fell on Friday morning as the jobs report surprised investors and suggested high interest rates (which are hurting corporate earnings) are not going away anytime soon.
The Fed has made it clear that it will continue raising rates to drain excess liquidity from the economy and bring inflation back to its “around 2%” target. By all reports, inflation is cooling off from its peak of 9.1% last summer. But the Fed’s preferred measure of inflation, known as the PCE Index, rose 5% year over year in December.
The fact that the labor market has been able to tolerate the Fed’s most aggressive policy in modern history suggests the central bank is confident of keeping interest rates high without triggering mass layoffs and unemployment.
Of course, the economy isn’t quite out of the woods yet. Higher interest rates are making it harder for people to borrow money – bad news for anyone looking to finance a home, take out student loans or start a business.
“A protracted recession — with different sectors of the economy contracting alternately rather than simultaneously — is underway,” wrote Sung Won Sohn, professor of finance and economics at Loyola Marymount University and chief economist at SS Economics, in a note on Friday.
The jobs report supports evidence from earlier in the week showing it is still very much a labor market.
On Wednesday, the Job Openings and Labor Turnover Survey, known as JOLTS, showed that the number of available jobs rose to 11 million in December — more than expected and the highest since July.
In other words, there are almost two jobs for every job seeker.
This is bad news for commercial real estate developers and managers who are dying for offices to return to five-day schedules. Because the workers don’t remove their sweatpants until they’re ready, thanks. (What are you going to do, fire them? See job-to-jobseeker ratio above.)
After three years of pandemic-related hybrid work for millions of employees, office occupancy is just beginning to pick up again. Security card swipe data from Kastle Systems showed office occupancy in 10 major US cities surpassed 50 percent this week for the first time since March 2020.