A Real Scorcher

The US economy added more than half a million jobs in January, hotly anticipated government data released on Friday showed.

No economist out of more than six-dozen who ventured a guess was anywhere close. The highest estimate from 77 forecasters was 320,000. The 517,000 headline print nearly tripled consensus.

The release included a number of revisions. The establishment survey reflected the annual benchmarking process and an update to the seasonal adjustment factors. The household survey for January included an updated population estimate.

Needless to say, the headline beat underscored the notion that the US labor market is resilient amid pervasive slowdown fears. To the extent “good news is bad news” vis-à-vis the potential for robust jobs data to convince Fed officials that rates need to remain in restrictive territory for the foreseeable future, Friday’s figures were a wakeup call for complacent markets.

Private payrolls posted a blockbuster 443,000 gain, more than double expectations. Suffice to say that looked incongruous with this week’s ADP print, although to be fair, ADP said hiring would’ve been brisk were it not for inclement weather.

Manufacturing added 19,000 jobs, nearly triple estimates, while leisure and hospitality payrolls increased by 128,000, well above 2022’s monthly average. 100,000 of those jobs were in food services and drinking places.

With the revisions and January’s gains, employment in leisure and hospitality is now less than 3% below its pre-pandemic levels.

I’ve repeatedly suggested it’s unlikely that leisure and hospitality would recover all the jobs lost to COVID this cycle. Now, it looks eminently (maybe even imminently) feasible.

Government employment was bolstered by the return of striking workers at universities. Retail hired 30,000 people during the month, more than quadrupling 2022’s average pace. Construction chipped in 25,000, transportation and warehousing 23,000, health care 58,000 and professional services more than 80,000.

The household survey notched a 894,000 gain, an impressive encore from December’s 717,000 increase.

The unemployment rate fell to just 3.4%, effectively the lowest in 70 years. Adjustments and revisions notwithstanding, the downtick was made even more notable by an uptick in the participation rate, to 62.4%.

Considering the blockbuster job gains, it was comforting that wage growth merely matched expectations with a 0.3% MoM increase (although December’s monthly gain was revised higher). On a YoY basis, AHE grew 4.4%, a touch more than anticipated but, again, not as brisk as you might expect in light of the otherwise flaming-hot figures.

I suppose you could construct a soft landing narrative if you piece together the consensus MoM AHE print, the relatively cool Q4 ECI headline from earlier this week and the deceleration in unit labor cost growth reported on Thursday.

But that might be a stretch when set against a 500,000+ NFP headline and the commensurately large increase in job openings during December (from the JOLTS report).

Markets were more likely to trade January payrolls as evidence to support the contention that the Fed has “more work to do” if cooling the US labor market is a prerequisite for sustaining a disinflationary impulse on the services side of what remains a very difficult equation.