The U.S. economy added 517k jobs in January, well above the consensus forecast of 190k. Revisions to the two prior months were substantial, adding 71k to the previously reported figures.
- The Bureau of Labor Statistics also made annual benchmark revisions to last year’s establishment survey payroll numbers, which incorporated comprehensive new data through March 2022. Revisions were also made in the months April-December, though these were more due to adjustments in seasonal factors and the NAIS 2022 conversion. Overall, hiring numbers through March were revised higher by 586k on a non-seasonally adjusted basis – slightly above the 462k telegraphed in the preliminary revisions released in August. On a seasonally adjusted basis, overall revisions for the year were also positive – adding an additional 311k jobs to previously reported 4.5M tally.
- We suspect the 2023 preliminary benchmark revisions (won’t be released until August) will show a softer pace of employment growth through the second half of 2022.
Employment gains on the service-side (+397k) were broad based, with leisure & hospital (+128k), education & health care (+105k) and professional & business services (+82k) leading the charge. Goods producing industries (+46k) also had a solid month, with gains spread across construction (+25k) and manufacturing (+19k). The public sector chipped in with a very robust 74k jobs.
In the household survey, civilian employment recorded another sizeable gain – rising by 894k. However, this reflects the annual update to the population estimates. If the January gain is corrected for the population adjustment, the number of employed people was up 84k. The updated population estimates also increased the size of the civilian noninstitutional population in December by 954k, the labor force by 871k, and the participation rate by 0.1 percentage points to 62.4% – matching its previous cyclical high. The unemployment rate fell 0.1pp to 3.4% – the lowest level since 1969.
Average hourly earnings rose 0.3% month-on-month (m/m) – a slight deceleration from December’s (upwardly revised) 0.4% m/m gain – while the 12-month change slipped to 4.4% (down from last month’s reading of 4.8%). After having declined in each of the two prior months, average weekly hours abruptly reversed course in January – rising by 0.9% m/m.
Key Implications
Wow! This is one strong labor market! Not only did payrolls smash expectations, but wage growth over prior months was revised a touch higher, while we also saw a sharp reversal in average hours worked.
Perhaps the only silver lining, from an inflation perspective, was that wage growth continued to show a modest decelerated, which is consistent with what other wage metrics including the Atlanta Fed wage tracker and the Q4 reading on the Employment Cost Index have recently suggested. That said, labor costs are still hovering in the 4.25%-5% range, which is 1-2 percentage points above what’s consistent with the Fed’s 2% inflation target.
In the press conference following this week’s interest rate announcement, Chair Powell noted that while the policy rate has already moved into restrictive territory, more hikes (plural) are required before the policy stance becomes “sufficiently restrictive”. While investors had previously discounted the Fed pushing rates above 5%, today’s employment numbers definitely tilt the scales in favor of more rates past March, as it is clear the labor market is still running at a pace that is far too hot!
