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Employers added 517,000 jobs in January, surprisingly strong growth in the labor market

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The labor market shattered expectations in January, as the economy added 517,000 jobs, despite tens of thousands of layoffs in the tech sector.

The unemployment rate dropped to 3.4 percent reaching a low not seen in 50 years, according to data released Friday from the Bureau of Labor Statistics.

Job gains had been steadily dropping for months, but January’s stunning job growth reflects unexpected tightness in the labor market that continues to grow jobs, even amid fears of a looming recession.

The new year’s spike in job growth raises new questions about the Federal Reserve’s progress in curbing inflation by cooling down the economy. The central bank had announced Wednesday it was easing back on interest rate hikes, but the gangbusters job creation could complicate that decision.

Job gains were spread across a wide range of industries, with the largest increases in leisure and hospitality, professional and business services, and health care. More than 128,000 jobs were added in leisure and hospitality in January, with the largest gains in bars and restaurants. Still, employment in the booming sector remains about 500,000 jobs below its pre-pandemic level. Employment in professional and business services rose by 82,000, while employment in health care rose by 58,000 jobs.

Job growth had been slowing steadily since August, but January marked the 25th straight month of job gains, in the latest indication that the labor market remains a bulwark for the U.S. economy at a moment of profound uncertainty about the year to come.

In the past week, the labor market signaled other signs of strength. Unemployment insurance claims fell to a nine-month low in the last week of January. And job openings in the United States soared to 11 million in December, meaning there were 1.9 jobs available for every person seeking employment. The labor market was even hotter and tighter for most of 2022, with the average monthly gain of 375,000 jobs, leaving employers in fierce competition for workers.

However, in the past few months, several sectors have faltered, including tech, finance and housing, among others more sensitive to the rising costs of borrowing due to higher interest rates. Google, Microsoft, Amazon and Goldman Sachs all announced mass layoffs in January, blaming uncertain economic conditions. In total, businesses cut more than 100,000 jobs in January, according to a report by the employment firm Challenger, Gray & Christmas, Inc.

The uptick in high-profile layoffs has not been reflected in payroll numbers or the unemployment rate, leading economists to posit that laid off workers are quickly finding new jobs or not immediately applying for unemployment benefits. These job losses are also being offset by hardy gains in other industries.

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“The tech companies who went on a hiring spree and were thinking things look great as far as the eye can see are now thinking maybe we overdid this,” said Gerald Cohen, chief economist at the University of North Carolina’s Kenan Institute of Private Enterprise. “But other companies are seeing this as an opportunity to scoop up computer programmers and workers with other skills that are in demand.”

The economic outlook has brightened in recent weeks, buoyed by a seemingly formidable labor market, slowing inflation, and a GDP report that pointed to economic growth in the last three months of 2022.

The Federal Reserve moved on Wednesday to slow the pace of interest rate hikes that began last March to combat soaring prices of gas, housing and food. Even as economic forecasters predict a recession as soon as this spring, Federal Reserve chair Jerome Powell said on Wednesday he took it as a hopeful sign that the central bank has been able to dampen inflation up to this point without triggering catastrophic job losses.

“It is a good thing that the disinflation that we have seen so far has not come at the expense of a weaker labor market,” Powell said. “But I would also say that that disinflation or a process that you now see underway is really at an early stage.”

Prospects for the global economy are improving, as worst fears fade

Still, the Federal Reserve is hoping to see the numbers of job openings drop and wages continue to moderate before policymakers will feel satisfied that inflation is under control.

Powell would not say on Wednesday whether the Federal Reserve officials expect the unemployment rate to increase by more than their current forecasts. Late last year, Fed officials projected unemployment would increase to 4.6 percent by the end of 2023.

“It’s like taking a bath and turning the faucet on. Getting the appropriate amount of hot and cold water is the Federal Reserve’s job, but the bath water has been too hot for the last two years,” said Giacomo Santangelo, an economist at the jobs site Monster, referring to the labor market. “No matter what they do, the water is still too hot.”

Fed hikes rates by 0.25 percentage points, with inflation easing

Some laid off workers say they continue to find plentiful job opportunities available to them.

In early January, Keegan Denery, 26, a video editor who works remotely from Columbia, S.C., lost his job at a New York-based marketing agency. But by the end of January, he already was hired into a better paying position at a tech start-up.

“I was only unemployed two weeks, which is crazy, because when I got laid off in 2020 during Covid, I was unemployed for a year and a half,” Denery said. “In my head, I was like, ‘I just lost my job. It’s going to be awful like the last time.’ But I got a job I’m far more excited about and enjoy doing.”

Jodie Gardner, 40, a carpenter, lost her position at a custom-cabinetry maker in Chicago in early January, where she made $24 an hour. Getting laid off has forced Gardner to rethink some big expenses she had planned. She had hoped to save enough money to get a root canal and some dental fillings replaced. Still, she’s optimistic that she’ll find a good-paying job in a similar trade.

“I’m trying not to jump at the first opportunity,” Gardner said. “Of all the industries, wiring, electrical and plumbing are still in demand. I feel optimistic, and I’m leaning toward a union job.”

Rachel Siegel contributed to this report.

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