The U.S. labor market clocked a shockingly strong month in January, adding 517,000 jobs and dipping down to 3.4 percent unemployment, according to data released Friday by the Labor Department.
The numbers blew past expectations. Analysts were projecting an increase of around 185,000 jobs and for the unemployment rate to edge up to 3.6 percent. In December, the unemployment rate dipped back down to 3.5 percent and added 260,000 new jobs, according to revised figures released Friday.
“This is an unbelievably strong unemployment report, not to suggest there’s a problem with credibility. The unemployment rate takes out the recent historic low going down to 3.4 percent while payrolls were a blowout topping 500,000 jobs. An additional 71,000 jobs are added with the revisions for the previous two months,” Bankrate analyst Mark Hamrick wrote in a statement.
“The stronger than expected employment report stands in direct conflict with fears of an imminent recession, which has been weighing on the minds of economists and business leaders alike,” he added.
The gain of 517,000 new jobs tops the monthly average gain of 401,000 for 2022, a year that already had outsized job growth.
Growth was strongest in the sector of leisure and hospitality, which added 128,000 new jobs compared to a monthly average of 89,000 in the sector last year.
Employment numbers were also revised up for 2022 by about 500,000 in total and were posted higher for November and December.
The data also showed that average hourly earnings rose by 0.3 percent, or 10 cents, to $33.03 an hour as wage pressures in the economy continued to moderate. Over the past 12 months, earnings have increased by 4.4 percent, compared with 4.6 percent as measured last month.
That follows a lower measurement of wage growth reported earlier this week in the Labor Department’s employment cost index (ECI), which came in under expectations at 1 percent.
Wage growth, while still well above pre-pandemic levels, has now slowed to its lowest annual rate since July 2021. Lower wage growth coupled with stellar job gains and low unemployment is a strong sign for the Federal Reserve as it attempts to quash inflation while avoiding a recession.
“With the job market this tight, the Federal Reserve and financial markets will remain even more focused on the inflation data,” Mortgage Bankers Association chief economist Mike Fratantoni wrote in a statement.
Inflation as measured by the Consumer Price Index (CPI) clocked in at 6.5 annually in December but down from a high of 9.1 percent in June, outpacing the growth in wages. The personal consumption expenditures price index (PCE), which is the Fed’s preferred inflation gauge, is up 5 percent on the year but down from 6.8 percent last summer.
The January jobs number is subject to an annual population correction by the Bureau of Labor Statistics that may have influenced the data. Due to the correction, the December and January jobs numbers are not directly comparable, and some economists have been putting up warning signs about this.
“Not to be too negative here, but I really don’t believe 500K. Would bet non-trivial measurement error there,” Adam Ozimek, an analyst with the advocacy organization Economic Innovation Group, wrote online after the release of the data.
“Job growth of 517,000 in January, and a drop in the unemployment rate to 3.4 percent, puts an exclamation point on the divergence between measures of economic activity and job market statistics,” Fratantoni wrote.
The numbers come after a strong report on jobs openings from the Labor Department earlier in the week, showing a jump of 5.5 percent in December to more than 11 million open jobs.
The ratio of job openings to unemployed workers jumped back up to a near-record of 1.9, meaning that there are nearly two job openings in the U.S. for every job seeker.
Updated at 9:34 a.m.