U.S. jobs report today: Economy added 517,000 jobs despite recession risk; unemployment fell to 3.4%

Employers added a booming 517,000 jobs in January as hiring unexpectedly surged despite high inflation, rising interest rates and the prospect of a weakening economy.

The unemployment rate fell from 3.5% to 3.4%, lowest since 1969, the Labor Department said Friday.  Unemployment for Black people declined to 5.4%, lowest on record dating to 1972.

Economists surveyed by Bloomberg had forecast 185,000 job gains.

"The economy is clearly not as close to recession as we had suspected," economist Andrew Hunter of Capital Economics wrote in a note to clients.

The blockbuster jobs total will likely not be welcomed by a Federal Reserve looking for job gains and wage growth to slow to further reduce high inflation and bolster its plan to pause its aggressive interest rate hike campaign in coming months.

Also, job growth in the fall was stronger than initially believed. Employment gains for November and December were revised up by a total of 71,000. November’s was revised from 256,000 to 290,000 and November’s from 223,000 to 260,000.

In a more encouraging development, average hourly earnings rose 10 cents to $33.03, pushing down the annual increase to a still elevated 4.4% from 4.8% the previous month.

What is the labor force participation rate?

Another positive: The share of adults working or looking for a job edged up o 62.4%. That’s the highest since March but still leaves it well below the pre-pandemic level of 63.4%. A larger labor supply helps ease longstanding worker shortages and puts downward pressure on wages as employers don't need to compete as intensely for job candidates.

Today's stock market

Despite those encouraging signs, the Dow Jones Industrial Average dropped by over 100 points on the belief the blockbuster job gain and hot labor market could mean more Fed rate increases. Meanwhile, yields on Treasury notes spiked. The 10-year note hovered near 3.5% around 10 a.m. ET.

Yet the labor market was buffeted by various crosscurrents last month, including winter storms and flooding as well as the aftermath of a strike and challenges Labor faced in its monthly survey of employers, Goldman Sachs said. As a result, the January jobs total likely doesn't reflect the course of hiring in the months ahead, economists said.

"We strongly doubt that this marks the start of a renewed acceleration," Hunter says.

Broadly, employment growth is expected to pull back substantially in 2023 after the U.S. added 4.8 million jobs last year, second most behind the 7.3 million gained in 2021 as the nation continued to recover from the pandemic. Those totals reflect upward revisions of about 900,000 that Labor announced Friday.

What will the job market look like in 2023?

Moody’s Analytics predicts employers will add 856,000 jobs this year – an average of about 71,000 a month – while forecasters such as Oxford Economics and Barclays expect hundreds of thousands of payroll losses.

But the pullback has decidedly not happened yet and could be pushed to later in the year after January's stunning and broad-based gains. Americans worked an average 34.7 hours a week in January, up from 34.4 hours the prior month and the most since last March, signaling strong demand for workers could persist in the short term.

Industries that are hiring

Leisure and hospitality, the industry hit hardest by the pandemic, led the advances with 128,000, mostly at restaurants and bars. Professional and business services added 82,000; health care, 58,000; retail, 30,000, and construction, 25,000; transportation and warehousing, 23,000; and manufacturing, 19,000.

Federal, state and local governments added 74,000 jobs, a figure that was boosted sharply by the end of a strike in California.

At Creative Noggin, a San Antonio-based marketing agency, revenue leaped 33% last year, and the firm added four employees to a staff of 11, says CEO Tracy Marlowe.

In the fall, growing recession worries led some clients to put projects on hold, she says. But when their sales continued apace, they decided to go ahead with the shelved projects.

“It seemed that people were kind of waiting for the other shoe to drop and it never did,” Marlowe says.

Now, with her firm’s revenue projected to increase another 15% to 20% this year, Marlowe is seeking a financial manager and copywriter and will likely bring on others, she says. She’s also taking advantage of a bigger labor pool, noting she has been getting about 25 applications a day for the financial manager role compared to a trickle for postings in 2021 and early 2022.

Some downshifting in job growth has been anticipated after the U.S. last August finally recovered all 22 million jobs wiped out by COVID-19. Recently, job growth has moderated but remained sturdy, falling from an average pace of more than 400,000 earlier this year to about 250,000 in recent months.

Most economists expect a mild recession to further discourage hiring as high inflation – and the Federal Reserve’s aggressive interest rate hikes to fight it – curb consumer spending, as well as business hiring and investment.

What does high job growth mean?

Job growth last month was likely inflated by quirks in Labor’s employment survey. For example, retailers and others typically hire many seasonal workers in the fall and let them go in January. But holiday hiring was weak last year and so fewer workers were laid off, boosting the January jobs figure, says economist Nancy Van Houten of Oxford Economics.

Also, COVID’s Omicron variant reduced payrolls a year ago but wasn’t a factor last month, juicing January’s employment total after seasonal adjustments, Goldman Sach said in a research note.

And since a strike by University of California workers lowered employment by 36,000 in December, resolution of the conflict likely increased public-sector job growth by a similar amount last month, Goldman said.

Several temporary factors also could have constrained job gains. Winter storms in the Midwest and Northeast, along with flooding in California, probably curtailed employment, Goldman said.

What major companies are laying off?

Meanwhile, companies announced 103,000 layoffs in January, more than twice the December total and more than five times the tally for the same period a year ago, said outplacement firm Challenger, Gray & Christmas. The firms cutting included IBM, Spotify, Google parent Alphabet, Microsoft and Salesforce,

Goldman noted those cuts didn’t appear to push up initial jobless claims, a gauge of layoffs that has remained historically low. But economist Tom Porcelli of RBC Capital markets said many laid-off workers got severance payments and simply didn’t bother to apply for unemployment benefits but they eventually will.

Lowest unemployment rate in history

January's 3.4% unemployment rate is the lowest since 1969. But it's far from the lowest unemployment rate the U.S. has seen. The lowest unemployment rate was 0.8%, in October 1944. This came as industrial demand skyrocketed after the US entered World War II and droves of workers joined the war effort.

December jobs report:Nonfarm payroll employment increased by 223,000

What a 2023 recession would mean: Job losses for most industries even as others add workers

Are we in a recession?

It may seem like we're in a recession, especially with all the big tech layoff announcements. However, the economy is still expanding. It grew by nearly 3% last quarter. That said the outlook for jobs isn't as positive compared to a year ago and Americans are exhausting their savings at higher rates.

Bitcoin price

After a rocky year, Bitcoin has entered 2023 with big gains as investors shrug off recession concerns. The cryptocurrency was trading above $23,500 ahead of the jobs report. It's up more than 44% for the month.

Apple stock

Apple stock is down in pre-market trading. The iPhone maker reported the largest quarterly revenue decline since 2016 in their earnings released yesterday.

ADP jobs report

Employers added 106,000 new private-sector jobs last month, according to payroll processing firm ADP.  Economists were expecting gains closer to 190,000.

ADP data can significantly vary from the Labor Department. For instance, in November ADP reported employers added 127,000 jobs versus the Labor Department which reported 263,000 jobs were added. But last month the gap was much smaller: ADP data found that employers added 253,000 jobs and the Labor Department reported 223,000 new jobs.

Salesforce layoffs 2023

There was some confusion this week regarding if Salesforce laid off more workers in addition to their 10% workforce cuts last month when workers announced on social media that they were laid off. But Salesforce told TechCrunch they were part of the previously announced layoffs.

Jobless claims report

Despite more recent news of layoffs, initial jobless claims for the last week of January dropped to a nine-month low of 183,000.

"Jobless claims continue to reinforce the same narrative of the past few months that the labor market continues to be very strong and tight," Citi economists said in a note to clients on Thursday.

Stock market post-Fed meeting

Stocks rallied on Wednesday after the Fed raised interest rates. Investors were initially rocked by the Fed's inclusion of the word "ongoing" in its statement, referring to rate hikes. But Fed Chair Powell's remarks later in the day quelled investors who celebrated the improving levels of inflation.

PayPal layoffs

Two of the biggest headline-making layoffs this week were PayPal and FedEx. PayPal announced it's laying off 2,000 workers, or 7% of its workforce. This comes as the tech industry laid off nearly 87,000 workers so far this year and almost 160,000 last year, according to data from Layoffs.Fyi.

FedEx layoffs

FedEx's layoffs were unique in that they weren't directly concentrated in the tech sector. FedEx announced on Wednesday that it would be laying off 10% of management in top positions. The company didn't specify how many workers would be impacted.

What was the December jobs report?

The December jobs report showed employers added 223,000 jobs, pushing the unemployment rate down to 3.5% from 3.7% in November. It also found that average hourly earnings rose 9 cents to $32.82, pushing down the annual increase to a still elevated 4.6% from a downwardly revised 4.8% the previous month.

What is the current unemployment rate?

The current unemployment rate is 3.4%.

Consumer Confidence Index

Consumer confidence unexpectedly fell last month as inflation continues to take a toll on Americans, according to The Conference Board's index released Tuesday. The biggest drop in consumer confidence came from households earning less than $15,000 and from households with people below 35 years old.

A separate survey by The Conference Board found that consumers are particularly anxious about the outlook for jobs in the next six months.

Employment Cost Index

On Tuesday, the Employment Cost Index was released, showing that wages grew at a slower pace than expected. That's a positive sign for bringing inflation down since price gains and wage gains tend to go hand in hand.

Dell layoffs?

Dell is part of a small group of tech companies including Apple that have avoided doing layoffs in recent months. However there are unconfirmed rumors that the compute maker could be the next tech company to announce layoffs.

Fed interest rate hike

The Fed raised interest rates by a quarter percentage point yesterday and it left the door open for future rate hikes.

At a news conference, Fed Chair Jerome Powell said inflation "has moderated but remains too high."

"We still think there's work to be done there," he said. "We haven't made a decision on exactly where" rates will peak.

Elisabeth Buchwald is a personal finance and markets correspondent for USA TODAY. You can follow her on Twitter @BuchElisabeth and sign up for our Daily Money newsletter here

This article originally appeared on USA TODAY: U.S. jobs report January: 517,000 jobs added despite recession fears