The new year’s spike in job growth raises new questions about the Federal Reserve’s progress in curbing inflation by cooling the economy. The central bank had announced on Wednesday that it would ease rate hikes, but gangbuster job growth could complicate that decision.
Job growth was spread across a wide range of industries, with the largest increases in leisure and hospitality, professional and business services, and healthcare. In January, more than 128,000 jobs were added in leisure and hospitality, with the largest gains in bars and restaurants. Yet employment in the booming sector remains about 500,000 jobs below pre-pandemic levels. Employment in professional and business services increased by 82,000, while health care employment increased by 58,000.
Job growth had been slowing steadily since August, but January marked the 25th consecutive month of job growth, a latest indication that the labor market remains a bulwark for the US economy at a time of high uncertainty about the year ahead.
Over the past week, the labor market showed other signs of strength. Unemployment insurance claims fell to a nine-month low in the last week of January. And the number of job openings in the United States rose to 11 million in December, meaning 1.9 jobs were available for every job seeker. The job market was even hotter and tighter for much of 2022, with an average monthly gain of 375,000 jobs, leaving employers in fierce competition for workers.
However, several sectors have stumbled in recent months, including technology, finance and housing, which are more sensitive to the rising cost of borrowing due to higher interest rates. Google, Microsoft, Amazon and Goldman Sachs all announced mass layoffs in January, blaming uncertain economic conditions. Overall, companies cut more than 100,000 jobs in January, according to a report from the employment agency Challenger, Gray & Christmas, Inc.
The increase in high-profile layoffs has not been reflected in payrolls or the unemployment rate, leading economists to argue that laid-off workers quickly find new jobs or do not immediately file for unemployment benefits. These job losses are also offset by strong gains in other industries.
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“The tech companies that were hiring en masse and thought everything looked great as far as the eye can see now think we may have overdone it,” said Gerald Cohen, chief economist at the University of North Carolina Kenan Institute of Private Enterprise. “But other companies are seeing this as an opportunity to bring in computer programmers and workers with other in-demand skills.”
The economic outlook has improved in recent weeks, supported by a seemingly formidable labor market, slowing inflation and a GDP report pointing to economic growth in the last three months of 2022.
The Federal Reserve on Wednesday took steps to slow the pace of rate hikes that began last March to counter rising gas, housing and food prices. While economic forecasters are predicting a recession as early as this spring, Federal Reserve Chairman Jerome Powell said Wednesday he took it as a hopeful sign that the central bank has been able to dampen inflation so far without causing catastrophic job losses. .
“It is good that the disinflation we have seen so far has not come at the expense of a weaker labor market,” Powell said. “But I would also say that that disinflation or process that you’re seeing starting now is really early on.”
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Still, the Federal Reserve hopes that job openings will fall and wages continue to moderate before policymakers are satisfied that inflation is under control.
Powell would not say on Wednesday whether Federal Reserve officials expect the unemployment rate to rise more than their current projections. Late last year, Fed officials predicted that the unemployment rate would rise to 4.6 percent by the end of 2023.
“It’s like taking a bath and turning on the tap. It’s the job of the Federal Reserve to get the right amount of hot and cold water, but the bathwater has been too hot for the past two years,” said Giacomo Santangelo, an economist at the job site Monster, referring to the job market. “No matter what they do, the water is still too hot.”
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Some laid-off workers say they are still finding plenty of jobs available to them.
In early January, Keegan Denery, 26, a video editor who works remotely from Columbia, SC, lost his job at a New York-based marketing agency. But at the end of January he had already been hired in a better-paying position at a tech start-up.
“I was only out of work for two weeks, which is crazy because when I got laid off in 2020 during Covid, I was out of work for a year and a half,” Denery said. “In my head I thought: I just lost my job. It’s going to be just as horrible as last time.’ But I have a job that I am much more enthusiastic about and that I enjoy doing.”
Jodie Gardner, 40, a carpenter, lost her job at a Chicago custom cabinetmaker in early January, making $24 an hour. Her resignation forces Gardner to rethink some major expenses she had planned. She had hoped to save enough money for a root canal and replacement of some fillings. Still, she is optimistic that she will find a well-paid job in a similar field.
“I try not to jump at the first opportunity,” said Gardner. “From all industries there is still demand for wiring, electricity and plumbing. I feel optimistic and lean towards a union job.”
Rachel Siegel contributed to this report.