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Labor market grew in January, despite recent job cuts

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The U.S. economy added 353,000 jobs in January, a shockingly strong pickup, even as higher interest rates continue to ripple through the economy.

The unemployment rate held at 3.7 percent.

The gains were roughly double economists predictions of 177,000 reinforcing that the economy remains firmly out of recession territory with the labor market propelling the economy forward, despite some high-profile layoffs at technology and media companies.

Robust consumer spending has allowed employers to hire at a rate that’s fast enough to keep up with population growth and wages continue to outpace inflation, boosting workers’ spending power.

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The picture of a U.S. economy that has defied recession predictions has also been bolstered by stronger than anticipated GDP growth in the final quarter of 2023. A hardy labor market and rising wages have allowed households to spend liberally, fueling a resilient economy.

Payrolls swelled across a variety of industries, after months of job growth concentrated in a few industries that aren’t sensitive to interest rate hikes. Professional and business services added 74,000 jobs in January, soaring past the sluggish average monthly gain of 14,000 jobs in 2023. Fueled by a rapidly aging baby boomer population, health care added 70,000 jobs, with the strongest gains in ambulatory health care, hospitals and nursing homes.

Retail gained 45,000 new jobs mostly at general merchandise retailers and manufacturing added 23,000 jobs though both industries have shown little overall change since early 2023. Government added 36,000 new roles, mostly in federal and local government, as wages have risen enough to keep up with the private sector.

Average hourly wage growth accelerated sharply in January, rising by 0.6 percent, to $34.55. Over the past 12 months, hourly wages have risen by 4.5 percent, beating inflation and boosting workers’ spending power. Federal Reserve policymakers are closely watching wages, hoping to see more moderated wage growth as a sign that inflation is under control.

President Biden, headed into an election year, has received a political boost from strong jobs creation and more than two years of unemployment below four percent, a stretch last seen in the 1960s, despite much criticism about rising prices throughout the economy.

Still, the labor market is in a delicate position, with the Federal Reserve announcing this week that it isn’t ready to begin cutting interest rates without greater certainty that inflation has been tamed. Economists say that if rates stay high for much longer, hiring could slow more rapidly and layoffs will rise, which could trigger a cycle of spending reductions and widespread job losses as companies lose revenue.

Last week the number of Americans applying for unemployment benefits rose to an 11-week high. Amazon, Microsoft, Google and many other tech companies said they will cut tens of thousands of jobs this year, and retailers such as Macy’s and REI have announced workforce reductions. UPS also announced about 12,000 layoffs this week, as the transportation and warehousing industry has reversed some of the massive expansion experienced during its pandemic e-commerce boom. Layoffs more than doubled between December and January from 34,817 to 82,307, according to employment firm Challenger, Gray & Christmas.

But some economists aren’t concerned for now about layoffs concentrated in a few industries triggering a broader meltdown in the economy. Layoffs are still trending below their pre-pandemic levels, according to data released by the Labor Department on Tuesday.

“In this low-unemployment environment, most of the laid-off workers will likely manage to find new jobs fairly quickly,” said Julia Pollak, chief economist at ZipRecruiter. “While some individual workers may struggle to find comparable work, the layoffs are unlikely to have an effect in the aggregate.”

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The labor market has been buoyed recently by a few booming industries that are less reactive to high interest rates: health care, government, and leisure and hospitality. Last year the public sector, which includes education, finally caught up with its pre-pandemic employment levels, after struggling for years with an understaffing crisis. That has been chalked up to stagnant wages and high rates of burnout. But more robust pay and benefits packages and streamlined hiring processes have recently made these jobs more attractive to workers.

Lindsey Rogers, 27, and her husband, Jared, public school teachers in Baker City, Ore., saw their household income double at the start of this school year, rising by around $48,000, because of mandated salary increases in their new union contract. Their school district in rural Eastern Oregon in previous years struggled to fill open positions, but started this school year without a single vacancy because teacher pay jumped significantly, said Erin Lair, superintendent of Baker School District.

For the Rogers family, the pay increase means they can afford the $750-a-month child-care costs for their new baby.

“We sat down at a union meeting on Zoom, and they pulled up our new pay scale and it was life-changing,” Rogers said. “I was in shock. We were both in tears. We were going to be able to provide a great life for our kid. We were actually going to be paid like professionals.”

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