America’s job market demonstrated its stunning resilience Friday, besting expectations by a factor of nearly three and making all those recession forecasts look pretty silly.
Earlier this week, the consensus estimate among economists was that the US economy likely added about 185,000 jobs in January. That would have been a solid gain, still above the pre-pandemic average.
But the economy had other ideas, adding more than half a million jobs in January.
Here are three key things to take away from Friday’s jobs report.
The headlines that came at 8:30 am ET Friday left economists stunned: America added 517,000 jobs last month.
The unemployment rate, which was expected to tick up slightly, instead fell to 3.4% from 3.5%. It hasn’t been that low since before the moon landing.
- After revisions, America gained 4.8 million jobs last year. That’s 300,000 more than previously reported.
- Job gains were widespread, led by the leisure and hospitality sector.
- Wages grew 4.4% from a year earlier — higher than expected. (That’s still below the latest inflation reading of 6.5%, though inflation has been steadily declining since June.)
Bottom line: Despite some high-profile layoffs in tech and media, the broader economy is thriving.
After a year in which a recession appeared imminent, many economists now say those forecasts were overly gloomy.
“Any concern the economy is in recession or close to a recession should be completely dashed by these numbers,” Moody’s Analytics chief economist Mark Zandi told CNN.
Much of that speculation centered on the Federal Reserve’s monetary tightening, which aimed to wring inflation from the economy. Such aggressive policies run the risk of a recession because they tend to depress business growth.
For now, it seems, the Fed’s actions haven’t snuffed out the fire in the labor market.
“Last year involved the biggest mis-reading of the economy in my lifetime,” tweeted economist Justin Wolfers on Friday. “The recession talk spiked to new highs, even as the economy recorded a rate of job growth that any real economist will tell you spelled ‘BOOM.’ “
So, what happened?
For one, the pandemic broke a lot of the models economists have historically relied on to make their forecasts.
“My meta-theory of why so many people have been wrong about the economy for so long is that many economists (and econ journos) are incapable of acknowledging that sometimes good things happen,” Wolfers said.
What’s good news for workers isn’t always great news for Wall Street. Stocks fell Friday morning as the jobs report took investors by surprise and suggested that high interest rates (which sap corporate profits) aren’t going away anytime soon.
The Fed has made it clear it will keep raising rates to wring excess liquidity from the economy and bring inflation back down to its goal of “around 2%.” By all accounts, inflation is cooling from its 9.1% peak last summer. But the Fed’s favored measure of price increases, known as the PCE index, was up 5% in December from the year before.
The fact that the labor market has been able to tolerate the most aggressive Fed policy in modern history suggests the central bank is safe to keep rates elevated without triggering mass layoffs and unemployment.
Of course, the economy isn’t fully out of the woods. Higher interest rates make it harder for people to borrow money — bad news for anyone hoping to finance a home, take out student loans or start a business.
“A rolling recession — where various sectors of the economy take turns contracting rather than simultaneously — is in progress,” wrote Sung Won Sohn, professor of finance and economics at Loyola Marymount University and chief economist of SS Economics, in a note Friday.
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