Job growth in the United States gained momentum in January, with wages experiencing the most significant increase in nearly two years. This surge evidences ongoing robustness in the labor market and may potentially create obstacles for the Federal Reserve's plans to initiate interest rate cuts in May, according to current financial market predictions.
Based on the latest employment report from the Labor Department, released last Friday, the unemployment rate for the previous month stood at 3.7%, maintaining a level below 4% for a consecutive two-year period—the longest stretch in over 50 years. The number of jobs created in 2023 surpassed expectations. The substantial job gains observed in January, coupled with the uptick in wages, have tempered expectations for a rate cut next month. Financial markets have scaled back the likelihood of a contraction occurring in May.
Chris Low, Chief Economist at FHN Financial in New York, remarked, "Given that the Fed now wants strong job growth, as (Fed Chair) Jerome Powell told us just two days ago, this report should not discourage the Fed from cutting rates. By the same token, however, it is not going to encourage them to rush into rate cutting."
Nonfarm payrolls, an indicator of nonfarm employment, reached 353,000 in January, marking the most substantial increase in a year, surpassing the anticipated 180,000. The economy added 126,000 more jobs in November and December than initially reported, mitigating the impact of winter storms that led to a shortened average workweek.
While the annual benchmark revisions revealed that 266,000 fewer jobs were generated in the 12 months leading up to March 2023 compared to previous reports, the overall employment growth over the past year amounted to 3.1 million. Before the revision, the estimated number of jobs for 2023 was 2.7 million.
The report highlights the continuation of economic growth momentum from the fourth quarter into the new year, casting doubts on the prospect of a "soft landing" for the economy. President Joe Biden welcomed the report, emphasizing that "America's economy is the strongest in the world."
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