In January, job creation in the US experienced a significant surge, defying predictions of an economic slowdown. According to the Labor Department, employers added 353,000 jobs, resulting in an increase in average hourly pay, while the unemployment rate remained steady at 3.7%.
This report builds upon a streak of unexpected job gains, surprising economists who were anticipating an economic slowdown due to the anticipated rise in interest rates since 2022. As a result of the strength in the job market, analysts believe that an early rate cut is less likely.
Neil Birrell from Premier Miton Investors remarked, “The US employment data provided a shock, beating expectations by miles, with earnings much higher than expected as well. These numbers indicate a strong US economy, causing reconsideration of the possibility of a March rate cut. Any concerns of a recession are currently unfounded.”
The US central bank had increased interest rates two years ago in response to rising price inflation, which was at its highest level in decades. The objective was to temper economic activity and alleviate pressure driving up prices. However, price inflation has declined from the elevated rates observed in 2022 and stood at 3.4% in December.
Despite the improvement in price inflation, robust household spending, initially driven by pandemic-driven savings, has been instrumental in sustaining businesses and creating a positive cycle where a strong job market supports consumer spending.
The recent report revealed that hiring in November and December was stronger than previously estimated. Sectors such as healthcare, retail, business, and professional services played a significant role in driving job gains in January.
Overall, the US economy exhibited a growth rate of 3.3% in the period from September through December.
Jerome Powell, the head of the US central bank, expressed optimism about a continued decline in inflation without a severe downturn. However, Powell emphasized the need for “greater confidence” before considering a reduction in borrowing costs. Consequently, a rate cut in March, as some investors had speculated, seems unlikely.