(Bloomberg) -- US employers added the most workers in a year and wages jumped in a surprise reacceleration in the labor market that will likely keep the Federal Reserve from cutting interest rates soon.
Nonfarm payrolls surged 353,000 last month following upward revisions to the prior two months, a Bureau of Labor Statistics report showed Friday. The unemployment rate held at 3.7%. Hourly wages accelerated from a month earlier, increasing by the most since March 2022.
Treasury yields, the S&P 500 Index and the dollar all rose. Swap contracts tied to Fed meeting dates further reduced the possibility of the US central bank cutting rates as soon as March. Traders also trimmed the total cuts they see for all of 2024.
“It certainly justifies the Fed staying on hold,” said Kathy Jones, Charles Schwab’s chief fixed-income strategist. “The economy is strong enough to generate a high level of jobs and hourly earnings running at 4.5% suggests potential inflation from demand to many at the Fed.”
Job growth in January was led by health care, professional and business services, and retail trade.
The blockbuster report highlights a labor market that’s been instrumental in powering consumer spending and keeping the economy on its expansion path. The data raise questions about the gradual downshift in the pace of hiring that had tempered wage growth and helped bring inflation down.
While Fed officials are hoping employment growth will remain strong enough to keep the economic expansion intact, they would like see more moderate pay gains as they await confirmation that inflation will keep slowing to their 2% target.
“We’re not looking for a weaker labor market,” Fed Chair Jerome Powell told reporters Wednesday after the central bank left interest rates unchanged at the highest level in two decades. “We’re looking for inflation to continue to come down as it has been coming down for the last six months.”
Fed officials are also paying close attention to how labor supply and demand dynamics are impacting wage gains. Average hourly earnings increased 0.6% from December and 4.5% from a year ago.
That figure was likely boosted by a decline in hours worked. The survey week for the January jobs report corresponded with a stretch of severe winter weather that roiled economic activity across a number of US regions. It triggered freezing temperatures in Texas, heavy snow in the Midwest and flash flooding in the Northeast.
The number of employees who didn’t work because of bad weather was more than a half million, the most in almost three years.
Read More: Bad Weather Probably Boosted Wage Numbers in January Jobs Report
The surprising payroll gains at the start of 2024 are likely to come as good news for President Joe Biden, who’s trying to convince American voters that the economy is strong heading into the presidential election in November.
The jobs report also showed the participation rate — the share of the population that is working or looking for work — held at 62.5%. Women entering the workforce helped keep offset a decline in men’s participation.
The monthly employment report is made up of two surveys — one of businesses and the other of households. This release included a yearly update to the establishment survey that produces the payrolls figures. The benchmark revision painted a slightly better picture of monthly job gains.
What Bloomberg Economics Says...
“The most important part of the January jobs report was the revisions, and they tell us the job market was hotter in the second half of 2023 than was apparent in real time. If that’s accurate, it suggests upward pressure on wage growth will persist, and it will be more challenging for the Fed to cut early this year. We therefore change our base case to a rate cut in May.”
- Anna Wong, Stuart Paul, Eliza Winger and Estelle Ou, economists
To read the note, see here
The annual update also included adjustments to the population controls used in the household survey data, which means the participation and unemployment figures aren’t directly comparable to the previous month.
(Updates market reaction)
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