• The January jobs report was much stronger than expected, with job gains of 353,000. There was also a big upward revision to December job growth.
• The unemployment rate held steady at 3.7%; it has been below 4% for 24 straight months.
• Wage growth was very strong and reaccelerated on a year-over-year basis.
• The very strong January jobs report makes a fed funds rate cut in mid-March unlikely.

Job growth in January came in far stronger than expected, at 353,000, according to a survey of firms from the Bureau of Labor Statistics. This was the largest monthly increase in employment since January 2023. There was also a large upward revision to job growth in December, to 333,000 from 216,000. November job growth was revised slightly higher, to 182,000 from 173,000. Average monthly job growth in the three months through January 2024 was almost 290,000, well above the economy’s long-term potential. The private sector added 317,000 jobs in January, with government employment growth of 36,000. 

The unemployment rate held steady at 3.7% in January, according to a survey of households. The unemployment rate has been below 4% for two straight years, the first time this has happened since the late 1960s. Adjusting for new population controls, employment in the household survey (different from the survey of firms) rose by 239,000, while the labor force increased by 124,000. The labor force participation rate (share of adults working or looking for work) was 62.5% in January, unchanged from December and down from either 62.7% or 62.8% in the four previous months. 

Growth was concentrated in private services-providing industries, with gains of 325,000 in January. These included increases of 112,000 in education and health services (100,000 in healthcare) and 74,000 in business/professional services. Retail trade employment was up by a strong 45,000, the best month since February 2023. Goods-producing industries added just 28,000 jobs in January, including increases of 23,000 in manufacturing and 11,000 in construction. 

There was a big jump in average hourly earnings over the month of 0.6% (rounded up from 0.553%), the biggest one-month increase since early 2022. On a year-over-year basis average wage growth was 4.5%, an acceleration from 4.1% in December (before revisions), and the fastest growth in almost one year. While wage growth was strong, the average workweek dropped by 0.2 hours to 34.1, the shortest average workweek since the pandemic. It could be that colder-than-usual weather pushed down the average workweek in January. With more jobs, higher wages, but a shorter workweek, total payrolls rose 0.2% in January from December, which should keep pace with inflation (CPI to be released on February 13). 

The much stronger than expected January jobs report, including upward revisions to job growth in previous months and a big increase in wages, makes a near-term cut in the fed funds rate less likely. In his press conference on Wednesday Federal Chair Powell pushed back against a rate cut in March, and this morning’s report is another argument against a cut at the Federal Open Market Committee’s next meeting, on March 20. Committee members will be concerned that strong job and wage growth in late 2023 and early 2024 could reignite inflationary pressures in the U.S. economy. PNC’s baseline forecast is for the FOMC to start cutting the federal funds rate at its following meeting, on May 1.