• Nonfarm payrolls rose by 517,000 in January, which is much higher than the 187,000 market estimates.
  • The unemployment rate was 3.4%, compared to the 3.6% estimate. This is the lowest level of joblessness since May 1969.
  • To lead all industries, 128,000 more jobs were added to the leisure and hospitality sector. Other notable gainers included professional and business services (82,000), government (74000), and health care (58,000).

The employment picture began 2023 on an astonishingly strong note with nonfarm payrolls recording their largest gain since July 2022.

According to a Labor Department report Friday, nonfarm payrolls rose by 517,000 in January. This is higher than the Dow Jones estimate at 187,000 and December’s gain of 260,000.

Michelle Meyer, Chief U.S. Economist at Mastercard Economics Institute said that “it was a phenomenal report.” “This raises questions about how we can see such high levels of job growth in spite of other economic rumblings. It’s clear that there is still a lot to be done for workers in areas where companies have struggled to hire the right people.

The unemployment rate was 3.4%, compared to the 3.6% estimate. This is the lowest level of joblessness since May 1969. The labor force participation rate climbed to 62.4%.

The 6.6% figure was also higher for a wider measure of unemployment, which includes discouraged workers as well as those who hold part-time jobs due to economic reasons. The Labor Department’s household survey showed an even larger increase of 894,000.

Julia Pollak, chief economist of ZipRecruiter, wrote that today’s jobs report was almost too good to believe. Falling inflation combined with falling unemployment is economic fiction, like $20 bills on the street and free lunches.

However, markets fell following the report. However, the major averages were mixed around noon.

The estimate was influenced by growth in a variety of sectors.

To lead all industries, 128,000 more jobs were added to the leisure and hospitality sector. Professional and business services (82,000), government (74,000), and health care (58,000) were other notable gainers. Construction was up by 25,000, while retail was up by 30,000.

Solid gains were also seen in wages for the month. The average hourly earnings rose 0.3% in line with the estimate and 4.4% from one year ago. This is 0.1 percentage points higher than expected, but still below the December gain which was 4.6%.

Blacks had a 5.4% unemployment rate, while women experienced 3.1%.

Dan North, Senior Economist at Allianz Trade North American, stated that “when you look at it, it’s pretty difficult to shoot any holes within this report.”

Despite the efforts of the Federal Reserve to slow down the economy, and bring down inflation from its highs since the 1980s, the surge in job creation is not unexpected. Since March 2022, the Fed has increased its benchmark interest rate eight more times.

The Fed’s most recent assessment of the job picture on Wednesday said that gains were “robust”, but noted only that “unemployment has remained low.”

In his post-meeting news conference Chairman Jerome Powell noted that the labor market is “extremely tight” and “out of balance”. There were approximately 11 million job opportunities as of December. That’s just shy of two workers for every one.

“Today’s report is an echo 2022’s surprisingly resilient jobs market, beating back down recession fears,” said Daniel Zhao (lead economist at Glassdoor). “The Fed made a New Year’s resolution that it would cool the labor market. So far, the labor force is responding.”

Although Fed officials have stated their intent to maintain rates high for as long it takes to lower inflation, the markets believe the central bank will start cutting before 2023.

According to CME Group data, traders increased their odds that the Fed would approve a quarter-percentage point increase in interest rates at its March meeting. The probability of this happening is now 94.5%. They expect another rise in the benchmark funds rate of the central bank to be approved by May or June. This would bring it to a range of 5%-5.255%.

The Fed hopes to create a “soft landing” in an economy that has been under pressure from inflation and geopolitical factors. This would allow for growth that was slowing down in 2022.

While most economists expect at least a mild recession this year, the labor market’s resilience may cause some reconsideration.

Andrew Patterson, senior economist at Vanguard, stated that “our base case” is still a recession that will likely occur in the second half of the year. Although one report does not indicate a trend, it is possible to continue to see upside surprises. This increases the marginal probability for a soft landing.

In the fourth quarter 2022, gross domestic product grew by 2.9%. Although the GDPNow tracker at Atlanta Fed is pointing to a 0.7% increase in the first quarter 2023, it’s based on incomplete data.