U.S. Hiring Surges With January Gain of 517,000 Jobs

Soft landing? The American labor market is still soaring.

After months of gentle but steady declines in job growth, employers unleashed an unexpected burst of hiring in January, adding 517,000 jobs on a seasonally adjusted basis, the Labor Department said on Friday.

The increase was the largest since July, and it drew exclamations from economists steeped in labor market trends, who had been expecting another month of gradual cooling.

“So much for moderation!” said Beth Ann Bovino, the chief U.S. economist at S&P Global Ratings. “We certainly didn’t see it in this report.”

Underscoring the labor market’s extraordinary vibrancy was the unemployment rate, which fell to 3.4 percent, the lowest level since 1969.

But even as businesses hired with striking zeal in January — or at least laid off fewer seasonal employees than in most years — wage growth continued to moderate. Average hourly earnings increased 0.3 percent from December, and 4.4 percent over the year, an indication that some of the pressure to lure employees with pay raises may be easing.

“Put simply, I would argue the Biden economic plan is working,” President Biden proclaimed in remarks at the White House, while dismissing the “chorus of critics” who had faulted it.

Still, the hefty hiring figures underscored the challenges facing the Federal Reserve, which is trying to cool the labor market in its effort to tame rapid inflation. By raising interest rates — on Wednesday, Fed officials did so for the eighth time in a year — policymakers hope to force businesses to pull back on their spending, including hiring.

The moves appeared to have been tamping down the labor market, with limited pain for workers. Since the summer, job gains had eased but remained above 250,000 a month, and layoffs were extremely low, notwithstanding a cavalcade of pink slips from technology companies.

Other recent measures were also offering reasons to believe the economy was coming off its rolling boil. Consumer spending fell at the end of last year, a sign that Americans were finally becoming more cautious in the face of rising prices, dwindling savings and fears of recession. And the housing market appeared to be slowing down, as high mortgage rates were making purchases too expensive for many would-be homeowners, though there has been some recent easing.

January’s hiring figures suggest that officials may have more work to do to reduce the labor market’s momentum and bring the economy more into balance.

The report showed that job gains were broad, touching even some industries that had been expected to slow as the Fed’s rate increases filtered through the labor market. Leading the charge were leisure and hospitality businesses, including restaurants, bars and hotels, which added 128,000 jobs, and health care, which added 58,000 — both sectors that were upended during the pandemic. Professional and business services also ramped up their hiring.

There was a substantial jump in government employment, too, though that was partly because striking workers at the University of California returned to work.

The information sector lost 5,000 jobs. But even that was a relative blip given the recent headline-grabbing layoffs at technology giants such as Microsoft and Google’s parent company, Alphabet.

“I would definitely say at the end of 2022, there was a slowdown in some industries,” said Nicola Hancock, managing director for the Americas region at AMS, a talent acquisition and advisory firm. But she added, “All of our clients are still hiring.” AMS works with blue-chip companies in industries including banking, financial services, technology and pharmaceuticals.

Further complicating the narrative, some emerging trends in the job market that had hinted at an impending economic slowdown appeared to backtrack. The number of hours worked rose, including in manufacturing and construction. And jobs in temporary help services, which tend to fall amid economic uncertainty, rose by 26,000 after months of declines.

The figures in Friday’s report are preliminary and will be revised at least twice.

The labor force participation rate was barely changed at 62.4 percent. Fed officials have been hoping to see an increase in the ranks of those available to work, which could alleviate the tightness in the labor market that is driving up wages and contributing to inflation.

If the report was befuddling, it also reaffirmed a prevailing impression: that the labor market is strong. After the upheaval from the pandemic’s onset, little has fundamentally knocked employers off course. Buoyed by seemingly bottomless demand for goods and services, businesses have been in a race to hire despite climbing borrowing costs, offering raises and a cornucopia of incentives to lure workers.

Last year, 4.6 million jobs were added, not including seasonal adjustments — nearly 200,000 more than initially reported, and the second most since records began in 1939.

With wage pressure subsiding somewhat, one possible explanation for the fresh surge in hiring was that businesses could more easily fill open positions.

“Basically, the hesitation and confusion that I think made it harder for employers and workers to find each other in the early parts of the recovery has started to abate,” said Betsey Stevenson, a professor of economics and public policy at the University of Michigan. “People are applying for jobs, and employers have a better understanding of what the labor market landscape looks like.”

In addition to the report on Friday, the government released data this week showing that job openings in December rose to 11 million. The number of posted jobs per available unemployed worker — a measure that policymakers have been watching closely — also increased.

Some businesses that were unable to compete on wages with bigger companies are now finding themselves in advantageous positions, said Stephanie Miller, the director of talent acquisition and retention at Express Employment International, a staffing agency based in Oklahoma City.

“We’ve all been working so lean for so long there’s not a lot of small to medium businesses that have extra,” she said. “They are just holding steady, continuing their growth, and they’re going to ride this out.”

That was the case for C&L Supreme of Des Plaines, Ill., which makes component parts for equipment such as document scanners and sorters. The company struggled last year to hire enough workers and largely operated with a staffing deficit — even after cutting an entire shift on the production floor in 2021, said Tom Hacker, C&L Supreme’s chairman.

“Regardless of our business level, we had positions to fill,” he said. Like many other companies, he cited a wide range of challenges, including a lack of qualified applicants.

But last month, Mr. Hacker said, the floodgates seemed to have opened, and the company was suddenly able to hire three employees, boosting its work force to about 35.

“The job climate or job market was really kind of weird and different coming out of Covid and through all of last year,” he said. “I think that’s starting to settle down some now for a couple of reasons.”

Many forecasters ‌expect the labor market to weaken this year as higher interest rates are increasingly felt. In its most recent region-by-region survey, known as the Beige Book, the Fed said businesses across the country “generally expected little growth in the months ahead.”

But it is not clear whether that will translate to widespread layoffs. Many businesses, after struggling to hire workers, may be reluctant to let them go and may try to adjust elsewhere, including offering fewer benefits. Some economists noted that employers might not have cut as many seasonal workers as is typical at the beginning of the year, contributing to the large seasonally adjusted gain in jobs.

“Business executives are looking at various creative ways to limit their labor costs, and that is going to be appearing in various forms,” said Gregory Daco, the chief economist at EY-Parthenon, Ernst & Young’s strategy consultancy. “We’re probably not going to see the types of rapid acceleration in layoffs that we’ve seen in prior cycles.”

Other businesses are taking a more deliberate approach to hiring as they see what the coming months bring.

Andy Sommer, an owner and chief executive of Forth & Nomad, a women’s lifestyle clothing and accessories store in Houston, said that though sales had increased 30 percent last year, he worried about hiring too many people before economic conditions become clearer. So while he is looking to replace workers who left after the holiday season, he is also trying different scheduling approaches and hoping managers can fill in any gaps.

“We just have no idea if this is going to be a slowdown for real coming,” he said. “So you just really don’t want to over-staff and anticipate an increase in sales and then it doesn’t happen and then you’re really stuck.”

Ben Casselman contributed reporting.