The economy gained 517,000 jobs in January, smashing expectations, in another sign that the Federal Reserve’s interest rate hikes have yet to harm the labor market substantially.
The figures reported by the Bureau of Labor Statistics on Friday morning provide reassurance about the strength of the economy. The unemployment rate fell to 3.4%, the lowest rate since 1969.
The results of the employment report come as a big surprise for economists. The consensus estimate was that the economy would add just 185,000 jobs and unemployment would actually rise by a tenth of a percentage point rather than falling to 3.4%.
“A fundamental surprise,” Brian Marks, executive director of the University of New Haven’s Entrepreneurship and Innovation Program, told the Washington Examiner after the report was released. “Going forward, this sort of signals to the Fed to continue down its path of increasing rates.”
Friday’s report is being closely scrutinized as it comes just days after the Federal Reserve voted to raise interest rates once again, albeit by a smaller amount. A stronger jobs report shows that rate hikes aren’t yet having the punch officials hoped and could cause the Fed to lean toward a more aggressive monetary stance in the new year.
The reading follows several months of strong job gains, which have been key positive economic data that President Joe Biden has touted even as historic inflation cuts deeply into the paychecks of people across the country. This newest report cuts into that narrative and raises fears about recession.
STATE OF THE ECONOMY — TAKING HITS AND RUNNING UP DEFICITS
One part of the economy that is in a downturn is the housing market, as the Fed’s efforts have translated to much higher mortgage interest rates.
Existing home sales were down a hefty 34% from the year before in December, according to the National Association of Realtors. It was also the worst December since the financial crisis.
The number of construction jobs grew by 25,000 in January, Friday’s jobs report revealed. The sector ultimately added more jobs per month in 2022 than it did in 2021. Residential construction employment, specifically, grew just slightly from the month before.
One reason construction employment hasn’t fallen by as much as one might think is that the housing market went from overheated to cold so fast that there is a glut of homes still under construction. As those construction projects finally start to come to an end (and as far fewer new projects are begun), those jobs will start to dwindle.
Friday’s report comes after a spate of good news about the jobs market. New claims for unemployment benefits, a proxy for layoffs, are running near the lowest levels in decades. Job openings unexpectedly jumped to 11 million in December, the bureau reported earlier this week. Despite reports of mass layoffs in the tech sector and elsewhere, the labor market as a whole has appeared strong in recent months.
The impressively strong labor market, coupled with recent reports suggesting that inflation is beginning to decline, has raised hope that the Fed might be able to drive down inflation without causing a recession, a scenario referred to as a “soft landing.”
Two consecutive quarters of GDP decline are typically indicative of a recession. After tumbling in the first quarter of last year, GDP fell at a 0.6% annualized rate in the second quarter, a final estimate from the Bureau of Economic Analysis showed. Still, GDP grew at a 3.2% annual rate in the third quarter and 2.9% in the fourth quarter, reversing the negative trend and further complicating the country’s economic situation.
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Still, most economists expect a recession to be declared sometime in the coming 12 months, with more than two-thirds of the economists at major financial institutions surveyed by the Wall Street Journal predicting a coming recession due to the Fed’s aggressive rate hiking.
