US adds a whopping 517K jobs in January, unemployment still low

The labor market continued to show strength to start 2023, as the monthly jobs report posted big numbers.

Key data from the U.S. Bureau of Labor Statistics’ monthly jobs report:

• Unemployment fell to 3.4%, ticking down from 3.5% in December to remain at historic lows.
• The economy added jobs to the tune of 517,000, which bested the 2022 average of 401,000.
• Average hourly wages rose by $0.10, marking year-over-year growth of 4.4%.

The Current’s view: The labor market continues to be an economic outlier. While there are signs of consumer pullback and belt-tightening among tech companies and retailers after months of high inflation, the job picture remains bright. One month into the year, there are few signs of the widespread “pain” that economists predicted in this indicator of the economy.

What brands and retailers are thinking: Jobs are a major indicator of demand, and the labor market continues to hum along. That means the consumer pullback is tied to choices about discretionary spending and holding off on certain purchases in the face of high prices, moreso than being unable to afford items altogether.

What the Fed is thinking: Here’s more evidence that a soft landing might be possible. The Fed has been raising interest rates to bring down inflation. There is risk that this will slow down the economy, including employment. There was some slowing in job growth in December, but this report indicates labor market softening still hasn’t happened for a sustained period, even as inflation is cooling. After the central bank scaled back its latest interest rate hike to 0.25% on Wednesday, Fed Chair Jerome Powell said he sees a “path” to bringing down inflation without a significant rise in unemployment. Here’s one more piece of data to bolster that belief.

Keep in mind: The labor market is still out of balance between supply and demand. This report shows a big rise in jobs and the labor force participation rate remaining the same. Job openings actually increased in December, the Labor Department found. So there a still the case. Eventually, it will likely have to come into balance. But given the unpredictability of this economic era, it’s tough to know when, or even how.

So, will there be a recession? One influential retail economist says no. National Retail Federation Chief Economist Jack Kleinhenz said conditions are likely to worsen in the economy, as growth will slow down with interest rates remaining in "restrictive territory." This will bring further headwinds to consumer demand. But he expects the hot labor market and strength of corporate and household balance sheets to serve as a bulwark against a recession.

“A month into 2023, the economy is facing stiff headwinds and – with the exception of easing inflation – will likely face more challenges before it gets better,” Kleinhenz wrote in an NRF economic review. “The debate on whether we are in a recession will heighten over the next few months, just like last year. But while households will probably feel recession-like conditions this year, I do not expect that the downturn will be severe enough to become an official recession.”