Why did we get a monster jobs report if the economy is slowing?

The economy wasn’t supposed to add half a million jobs in January.

In fact, a consensus poll of 81 economists expected job gains to land at around 185,000, according to Refinitiv. After 11 months of aggressive rate hikes from the Federal Reserve, the experts were naturally expecting the economy’s job gains to slow as higher borrowing costs percolated through the economy, slowing investment and growth and pushing companies to pull back on spending and hiring.

And yet, even though it seemed impossible, the labor market is somehow getting tighter, said Rucha Vankudre, senior economist at business analytics firm Lightcast.

“I think pretty much all the labor economists in the country this morning are shocked,” Vankudre said Friday during a webinar after the jobs report was released. I think the question on everyone’s mind is, ‘How can the labor market keep getting stronger and stronger, and how can this keep happening while at the same time we are seeing prices come down?’”

Instead of lending credence to what was a bubbling belief in a soft landing, Friday’s jobs report only seems to beg more questions about not only the state of the economy, but also of the Federal Reserve’s attempts to hammer down high inflation.

On Wednesday, the Fed concluded its first policymaking meeting of 2023 by green-lighting a quarter-point interest rate hike — the smallest since March — as a reflection of progress in its fight to lower inflation.

The more moderate increase had been long telegraphed and came despite a hotter-than-expected December Job Openings and Labor Turnover Survey (JOLTS) report, which showed job openings grew to more than 11 million, or 1.9 available jobs for every job seeker.

Fed officials remain laser focused on wages and inflation, and are seeing some progress there, said Elizabeth Crofoot, Lightcast senior economist. Fluctuations are to be expected in any economic data, and it’s (always) important to remember that “one month does not make a trend,” especially for January data, she said.

“I think [Fed officials] are going to say, ‘Let’s continue to keep our eye on the data,’ and they’re going to hold steady until they see that inflation rate come down,” Crofoot said.

The January jobs report shouldn’t trigger a wholesale change of what Fed members are thinking or what they were planning on doing before this report, Sarah House, senior economist at Wells Fargo, told CNN.

“I think it suggests that the labor market remains still very strong, and there’s still a lot of wage pressures coming from that strong labor market that the Fed needs to contend with if it’s going to get inflation back to 2% on a sustained basis,” House said, noting the Fed’s target inflation rate.

The Covid pandemic was a tremendous shock to global economies, and the US labor force is still showing the effects of historic employment losses, sudden shifts in consumer behavior, discombobulated supply chains, and efforts to return to a state of normality.

The employment recovery since 2021 has been historically robust, with the monthly job gains larger than anything seen on record.

January’s jobs report came with added complexity, because it included annual updates to populations estimates and revisions to employer survey data.

“Now we know both [2021 and 2022] had faster job growth than we previously realized,” said University of Michigan economists Betsey Stevenson and Benny Doctor in a statement Friday. “The patterns remain the same: Job growth accelerated in the second half of 2021 before slowing in the first half of 2022 and slowing further in the second half of 2022.”

The January reports also bring with them “seasonal noise,” said Joe Brusuelas, principal and chief economist for RSM US.

“I’m advising policymakers and clients to ignore the topline number [of 517,000],” he said, noting it’s likely a function of seasonal adjustments and a reflection of swings in hiring activity and traditional cutbacks that take place from mid-December to mid-January.

“That being said, even if a downward revision takes away 200,000 or so off the top, you still are sitting at around 300,000,” he added.

“The job market is clearly too robust at this time to re-establish price stability; therefore, the Federal Reserve is going to have to not only hike by 25 basis points at its March meeting, it’s going to have to do so at the May meeting,” he predicted.

Last summer, Fed Chair Jerome Powell warned that “some pain” (aka rising unemployment) would likely be felt as a result of the Fed’s sweeping efforts to tackle inflation.

Yet Powell did not once utter the word “pain” during his press conference on Wednesday, said Mark Hamrick, senior economic analyst with Bankrate.

“If they were to put money on it, I think Las Vegas oddsmakers would be doubling down right now on the soft landing scenario — not to say that’s the base case, per se, but the chances seem to be growing,” Hamrick said.

“If anything, the global economic scenario has brightened in recent days and weeks — and we got a significant ray of sunshine with this January employment report, including all the revisions — but that’s not to say that consumers or businesses should be complacent with respect to an eventual risk of a recession,” he said.

So for now, the chances of a soft landing remain unknown.

“This is sort of a bumpy, turbulent ride to who knows where,” Crofoot said.