The message the U.S. jobs report sent Friday was a surprising one: Despite a surge in viral cases in January, the labor market is so healthy that employers kept hiring last month at a pace that far surpassed anyone’s expectations.
Before Friday, the widespread view was that COVID-19’s highly transmissible omicron variant had kept people home and held down hiring in January. Some economists even predicted a job loss for the month. Instead, employers added 467,000 jobs.
At the same time, though, the sizzling job market means that inflation will likely keep simmering, all but ensuring that the Federal Reserve will raise interest rates several times this year to try to slow the steep price increases — for food, gas, rent, cars and many other items — that have squeezed millions of households.
Yet the jobs picture seems to be steadily brightening, with wages up, layoffs down and many employers eager to fill jobs. In its report Friday, the government sharply upgraded its estimates of job growth for November and December, too.
“What we’re really seeing here is businesses learning how to live with the virus and operate with the virus,” Labor Secretary Marty Walsh said.
He noted that the proportion of Americans who teleworked rose from 11.1% in December to 15.4% last month, suggesting that many employees were able to work from home even as omicron cases surged.
Over the past year, the economy has added more than 550,000 jobs a month, extending its steady rebound from 2020’s deep two-month recession. Still, the United States remains 2.9 million jobs short of the number it had in the pre-pandemic month of February 2020.
Here are five takeaways from the January jobs report:
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BETTER THAN WE THOUGHT
Not only were the January jobs numbers unexpectedly large, but the Labor Department reported that hiring late last year was much stronger than it had originally thought. It revised up its estimate of the number of jobs employers added in November and December by a combined 709,000.
Andrew Flowers, the labor economist at the recruiting firm Appcast, suggested that the upgraded revisions for job growth “radically changed our understanding of the labor market’s trajectory. Instead of a slowing trend from last summer, job growth looks to be trending upward.”
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HELP WANTED AT RESTAURANTS AND HOTELS
Among the most surprising figures in Friday’s jobs report was that hiring at restaurants and hotels — the kinds of employers that would presumably delay hiring during a wave of viral cases — rose sharply in January despite the omicron surge. The hiring gains in that sector suggested that many Americans have learned to live with the virus and are continuing to go out to eat and take trips. Restaurants and bars added more than 108,000 jobs last month, hotels nearly 23,000.
“It confirms that each successive wave of the virus is having a smaller and smaller impact on activity and labor demand,” said Brian Coulton, chief economist at Fitch Ratings.
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OFF THE SIDELINES
The unemployment rate ticked up from 3.9% in December to a still-low 4% in January. But it did so, at least in part, for an encouraging reason: Many Americans came off the sidelines of the workforce and started looking for a job, and not all of them found one right away. As a result, they were counted as unemployed.
The percentage of people working or looking for work — the so-called labor force participation rate — rose last month to 62.2%. That was the highest such rate since March 2020, though still below pre-pandemic levels of more than 63%.
The influx of workers could help ease the labor shortages that have left many companies struggling to keep up with surging consumer demand.
“There are financial reasons to return to the workforce,” said Bernard Baumohl, chief economist at the Economic Outlook Group. “Washington is no longer mailing out emergency checks to households, and inflation continues to erode the purchasing power of consumers.’’
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RISING PAY
Because the economy’s unexpectedly swift rebound has left employers scrambling to find workers, many have responded by jacking up wages. Hourly pay rose last month by a strong 5.7% for all workers and 13% for those who work for hotels, restaurants, and other leisure and hospitality companies.
Still, pay overall hasn’t been keeping up with inflation, which in December was running at the fastest year-over-year rate since 1982. In December, average hourly wages were actually down 2% from a year earlier after adjusting for higher prices.
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A GREEN LIGHT FOR THE FED
The strength of the jobs report helps clear the way for the Federal Reserve to reverse its policy of keeping interest rates super-low to protect the economy from coronavirus fallout. The central bank has indicated that it will start raising its benchmark rate, now near zero, several times beginning in March to try to combat high inflation.
“The (jobs) report in its totality still points to a robust labor market, characterized by low unemployment and strong job creation, that managed to successfully push through the disruptions created by the omicron variant,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “Not that the Fed needed another reason to tighten in the near term, but they just got it.’’
That bleak jobs report the White House had been bracing for never arrived Friday.
Instead, President Joe Biden got the pleasant surprise that the U.S. economy had powered through the omicron wave of the coronavirus and posted 467,000 new jobs in January — along with strong revisions to job gains in the two prior months. It showed just how much the pandemic’s grip on the economy has faded, though the nation is still grappling with high inflation.
“Our country is taking everything that COVID has to throw at us, and we’ve come back stronger,” Biden declared at the White House.
The jobs report suggested the United States has entered a new phase in its recovery from the pandemic. And it capped something of a comeback week for the president.
Also on Friday, the House passed a bill to jumpstart computer chip production and development, a key step for reconciling differences with an earlier measure approved by the Senate. And a day earlier, outside the economy, the administration announced that U.S. forces had raided the home of the Islamic State leader, leading Abu Ibrahim al-Hashimi al-Qurayshi to blow himself up.
Harvard University economist Jason Furman, a former adviser in the Obama White House, said the jobs report showed that employers and workers had gotten over the havoc caused by the pandemic.
The virus “is now one factor among many and no longer the dominant factor it was,” said Furman. He pointed to broad strength across the report and the addition of 151,000 jobs in the leisure and hospitality sector — restaurants, hotels, entertainment, and more in an area of the economy most prone to disruption from the pandemic.
Yet as the economy strengthens, a question for Biden personally — and his presidency — is whether he can stitch together the positives in a convincing way to revive his support that has declined in polls in the past year.
Who — and what — gets the credit?
The infections caused by omicron had caused millions of Americans to miss work, leading to expectations that the economy lost jobs in January. Yet when the figures showed the virus had little impact, Republicans were quick to offer an alternative narrative — that the job gains reflected the expiration of unemployment benefits added with a push by Biden and his Democrats months earlier.
“Now that there is no longer a barrier to work in the form of Democrats’ unemployment bonuses and monthly stimulus checks, Americans are finally coming off the sidelines,” said Texas Rep. Kevin Brady, the ranking Republican on the House Ways and Means Committee.
And, jobs aside, Biden acknowledged things aren’t entirely rosy. Inflation remains a major challenge, with consumer prices increasing at 7% over the past year.
The strong jobs report, however, may give the Federal Reserve reason to raise interest rates and pull back on its support for the economy to reduce inflation. Average hourly earnings rose 5.7% in January from a year ago, suggesting that the demand for workers is leading to higher incomes and possibly more sources of inflation.
Joe Brusuelas, the chief economist at the consultancy RSM, said the solid labor market should make it easier for the Fed to hike rates without disrupting growth very much. It’s possible that workers will come out of the pandemic more productive than before, making it easier for growth to occur even as interest rates rise.
“Given the fact that corporate profits continued to rise at a strong clip even as wages quickly increased tends to imply that the American commercial sector and economy is in the midst of a productivity boom,” Brusuelas said. “That strongly implies that the economy will be able to absorb coming rate hikes in a better fashion than is currently acknowledged.”
Biden on Friday tried to make a play for the record books — touting the gains that have occurred under his stewardship. At 4% unemployment and 6.6 million jobs added during his first full year, he’s making his case that his $1.9 trillion coronavirus relief package was a wise choice and that lawmakers should now support the rest of his agenda to prolong the growth.
“History has been made here,” Biden declared “It comes alongside the largest drop in the unemployment rate in a single year on record, the largest reduction in childhood poverty ever recorded in a single year. And the strongest economic growth this country has seen in nearly 40 years.”