Economy Adds 467,000 Jobs, Far More Than Expected

The American economy created far more jobs than expected in January even as the economy was gripped by a surge in new Covid-19 infections.

U.S. employers added 467,000 jobs in January, the Labor Department said Friday. The unemployment rate ticked up to four percent, one-tenth of a point higher than December.

Economists had expected the economy to add 150,000 jobs and the unemployment rate to hold at last month’s 3.9 percent. The range of forecasts by economists surveyed by Econoday was between a loss of 400,000 jobs to a gain of 280,000, so the January figures were beyond even the most bullish forecasts.

The better than expected jobs figure suggested that U.S. businesses kept hiring despite a slowdown in economic activity and many hourly wage workers not working while infected with the omicron variant or quarantined after exposure to someone who tested positive.

This indicates that the economy has developed an immunity to the pandemic, moving along resiliently despite the massive increase in new cases, hospitalizations, and even deaths in the first month of the year. That could mean that future waves of infections will be less of a drag and more Americans will continue to live more normal lives even if new variants push up case numbers.

January 2022 will be remembered as the month the virus ceased to be boss. It wreaked havoc & death at a terrible scale. But the economy no longer cares. People returned to the workforce. The economy added jobs. Wages rose. You would barely know it happened from the economic data.

— Jason Furman (@jasonfurman) February 4, 2022

There was a strong upward revision to December’s jobs figure. Originally reported as 199,000, less than expected, the Bureau of Labor Statistics said on Friday that it now views the economy as having added 510,00 jobs. Combined with the upward revision to November, the economy is now seen as adding 709,000 more jobs than previously reported.

Over the last three months, job gains have averaged a very strong 541,333.

One analyst who called it close to correct was Adam Ozimek, the chief economist at Upwork.

This is a risky call but mark me down for +400k. I think the seasonal workers will be held on to.

— Adam Ozimek (@ModeledBehavior) February 4, 2022

The upward tick in the unemployment rate reflects more people entering the workforce, a positive development for the economy. The workforce participation rate, expected to tick down from 61.9 percent to 61.8 percent, instead rose to 62.2 percent. Average hourly earnings rose 0.7 percent, also higher than expected. Compared with a year ago, average hourly earnings are up 5.7 percent, a big jump from December’s upwardly revised five percent (initially reported as 4.7 percent) and above the 5.2 percent forecast. The average workweek moved down a bit to 34.5 hours from 34.7 hours.

The economy rebounded from the pandemic much faster than expected. The labor market, in particular, quickly recovered much of the damage down by 2020’s lockdowns and social distancing, with the unemployment rate dropping much faster than expected.  Demand for goods soared as American incomes were pumped up with stimulus money from various government programs and social distancing rules left people bereft of many of the leisure services activities–sports, concerts, travel, movies–that typically would have drained bank accounts.

The supply side of the economy could not keep up with the shift into spending on goods, especially with many exporting countries also struggling with the pandemic. China’s ports have suffered a series of closures under the country’s zero-tolerance policy for Covid. Various stages of the global supply chain to build semiconductors have also broken down, creating shortages that forced makers of everything from cars, to appliances, to phones to slow production.

Unusual trade imbalances shipping containers scarce in some places, such as Asian ports, and sitting empty in others. But even as that was resolved, U.S. ports around Los Angeles were overwhelmed with incoming ships, forcing long delays. U.S. companies, fearful of shortages around the holidays, scrambled to fill shelves and warehouses early and warned consumers to do their shopping early.

Despite the signs that the demand side of the economy had recovered and the supply side was straining, the Federal Reserve continued to keep rates low, fearful of repeating past mistakes of withdrawing economic support too early. Similarly, the Biden Administration and Democrats led by House Speaker Nancy Pelosi (D-CA) and Senate Majority Leader Chuck Schumer (D-NY) pushed through an enormous spending program called the American Rescue Act.

The result: an explosion of inflation that Fed policymakers and Biden administration initially insisted would be transitory. But as the supply chains remained stressed and prices continued to climb last year, Fed officials abandoned the word transitory and scrambled to pivot to an inflation-fighting stance. By the end of the year, inflation was running at seven percent, the highest in nearly 40 years.

Looking to get inflation under control, Federal Reserve chair Jerome Powell and his fellow Fed officials have signaled that they will raise their target interest rate above the zero to 0.25 percent range that has held since the pandemic struck.

The much stronger than expected job gains in January–alongside the upward revisions to prior months–will likely put pressure on the Fed to act more quickly to bring inflation under control now that the labor market looks much more vigorous. The Fed could signal that it expects more rate hikes than the three or four currently anticipated and it could announce an aggressive plan to shrink its balance sheet.