The labor market in the United States is not cooling down even with rising interest rates. The world’s leading economy added 517,000 jobs in the first month of 2023. That’s a pace that more than doubles what analysts were forecasting (around 185k) and much higher than what the Federal Reserve would like to see to stave off the threat of inflation getting high. The new data released this Friday by the Bureau of Labor Statistics put the unemployment rate at 3.4%, the lowest since 1969.
“Job growth was broad-based in January, led by gains in leisure and hospitality, professional and business services and healthcare. Employment also increased in public administrations, partly as a result of workers returning after a strike,” explains the statistics office at the Ministry of Labour.
January’s seasonally adjusted 517,000 jobs, almost double the previous month’s figure, is the highest since July of last year and the best for a month of January in at least the last decade. As if that wasn’t enough, the Bureau of Labor Statistics has revised upwards the job creation data for 2022. 290,000 and 260,000 jobs were created in November and December respectively. With the entire revised series, the economy added 4.8 million jobs in 2022, at a rate of 400,000 per month.
US Federal Reserve Chairman Jerome Powell is attempting to dampen demand by raising interest rates to ease the pressure on prices. Inflation ended 2022 at 6.5%, below the mid-year high of 9.1% but well above the 2% target for price stability.
After the last monetary policy meeting this week, the central bank hiked interest rates for the eighth straight session, holding them at 4.5% to 4.75%, the highest in 15 years, but warned they would rise further. After this Friday’s data, there is even less doubt that the next surge will come at the March session. It is expected to hover around 0.25, although the Fed will continue to monitor published indicators in case tougher action is needed. Markets reacted lower after the data was released, also influenced by the results from Apple, Alphabet and Amazon released this Thursday.
salary moderation
The only information that can offer some comfort to Powell is that wage increases continue to slow their pace from last year. In January, they rose by 0.3% and the trailing 12-month rate falls to 4.4%. However, the Federal Reserve Chairman warned in his press conference on Wednesday that inflation in the service sector, where labor costs weigh heavily, cannot be controlled until there is greater equilibrium in the labor market. Currently, available jobs are almost double the number of unemployed, which stands at 5.7 million.
The uninterrupted 25-month streak of job creation coincides with Joe Biden’s tenure. Between 2021 and 2022, 11.5 million jobs were added, adding to last month’s figure, amid the heat of pandemic recovery and a favorable sluggishness that hasn’t stopped yet. After two years of the largest job creation on record, unemployment has fallen from 6.7% to the current 3.4%.
The labor shortage is influenced by factors such as early retirement, higher childcare costs, increased transport costs and reduced immigration, which reduces the number of people in work. And faced with this shortage and the difficulty of hiring, companies are thinking twice before laying off their employees, as they did at other times when demand began to fall.
The leisure and hospitality sector added 128,000 new jobs in January, up from an average of 89,000 jobs per month in 2022. Over the month, 99,000 new jobs were added in hospitality while employment continued to fall. Employment in leisure and hospitality remains below its pre-pandemic level in February 2020 at 495,000 jobs, or 2.9%, but appears to be regaining strength.
In January, employment in professional and business services rose by 82,000 jobs, led by gains in professional, scientific and technical services (+41,000). Job growth in professional and business services averaged 63,000 jobs per month in 2022.
Employment in the public sector, for its part, increased by 74,000 jobs in January. Employment in state public education rose by 35,000 jobs, reflecting the return of university staff after a strike.
In the United States, the labor market is measured using two main surveys: one for businesses and the other for households. The first serves as the main reference for the number of jobs created and the second is used to measure the labor force, which has skyrocketed over the past month, and the unemployment rate. Household statistics indicate that January job creation is even greater than corporate job creation, at almost 900,000, and the unemployment rate falls to 3.4%.
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