The January jobs report absolutely blew away economists' and market participants' expectations.
U.S. total nonfarm payroll employment expanded by an almost unthinkable 517,000 new jobs in January, the Bureau of Labor Statistics said Friday. Economists surveyed by Bloomberg were looking for the addition of 189,000 new jobs last month.
At the same time, the unemployment rate hit a 53-year low of 3.4%, down from 3.5% in December. Economists were expecting the unemployment rate to tick up to 3.6%.
The surge in hiring comes despite signs of recession in parts of the economy, a series of high-profile layoffs in the technology and industrials sectors, and the Federal Reserve's efforts to weaken the labor market by aggressively raising interest rates.
As to that last point, the shockingly strong January jobs report was another example of "good news is bad news" for equity investors. The three major indexes gapped lower at Friday's opening bell, as labor market strength likely steels the Fed to maintain its hawkish stance on inflation. The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite went on to finish Friday's session with losses.
With the January jobs report now a matter of record, we turned to economists, strategists, investment officers and other market pros to get their takes on what the data mean for the markets, macroeconomics and interest rates going forward. Please see a selection of their commentary, sometimes edited for brevity or clarity, below.
What the experts are saying
"The January jobs report basically leaves one speechless. It's hard to make out what is going on given that companies anticipate at least a mild downturn. Not laying off workers due to shortages is one thing, but cranking up your staff is quite another. Still, we could see some payback next month. Layoff announcements soared in January to above 100,000, about double the norm, and not just in the technology sector. Nonetheless, today's report does raise serious doubts about whether the economy is slipping into recession. Of course, if job growth remains strong and labor markets tighten further, this will compromise the Fed's goal of restoring price stability, leading to several more rate hikes that would ultimately be the economy's undoing." – Sal Guatieri, senior economist at BMO Capital Markets
"The labor market continues to surge where the index of payrolls, hours worked and wages up impressively in January. Bottom line, the Fed is not done!" – John Luke Tyner, portfolio manager and fixed-income analyst at Aptus Capital Advisors
"The surprise nonfarm payroll employment report for January, up 517,000 and the 3.4% rate of unemployment, while excellent news for the U.S. economy, is probably not good news for the markets and definitely not good news for the Federal Reserve (Fed), which wants to see employment weakening considerably before it concludes its interest rate increase for this monetary tightening cycle. This report will probably guarantee at least two more 25 basis point increases in the federal funds rate, one in March and a second one in May of this year." – Eugenio Alemán, chief economist at Raymond James
"Data revisions make this jobs report much noisier than the typical one, but the message is unmistakable: It paints a much stronger economy at the turn of the year than other recent economic data. The Fed looks across all available economic data to assess the state of the economy, but puts a lot of weight on the jobs report – they have a maximum employment mandate, not a GDP growth mandate. The January jobs report increases the odds that the Fed's terminal rate is over 5%. Their decision will depend on whether other economic data corroborate this jobs report over the next few months." – Bill Adams, chief economist at Comerica Bank
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"Today's payroll number is certainly a head-scratcher for most market participants as the 517,000 gain was well above estimates along with the unemployment rate going the opposite direction the Fed would like to see. As expected, most of the job additions are coming from the service sector and particularly the leisure and hospitality sector. The silver lining for the Fed in a report like this would have to be the fact that wage pressures continue to ease, as average hourly earnings on a year-over-year basis have declined from 4.8% to 4.4%. On balance, the latest labor market data accentuates the notion that monetary policy works with a lag, and it is going to take more time for the economy to feel the full effects of a 4.75% Fed policy rate." – Charlie Ripley, senior investment strategist at Allianz Investment Management
"The unexpectedly strong payroll report, with the unemployment rate moving lower to 3.4%, coupled with the disappointing earnings reports from Alphabet and Apple, has market participants concerned that the Fed's path towards price stability will take longer than the futures market expected – and even longer than the Fed expected. The undeniably strong report is what markets hope for coming out of a recession, but not what you want to see when expectations for the end of the Fed rate hike campaign is suddenly challenged by a significantly stronger labor market." – Quincy Krosby, chief global strategist at LPL Financial
"The labor market is still solid, offsetting the risk of slower consumer spending. Additionally, the slowdown in average hourly earnings should ease inflationary pressures in the near term as wage growth comes back in line. No doubt the Fed will continue to increase rates at the next meeting to slow the demand side of the economy." – Jeffrey Roach, chief economist at LPL Financial
"Clearly a very hot employment report. There are two main take-aways outside of the headline surprise: 1.) Much of the dovish commentary that came from Powell's press conference is at risk of being walked back, as there is now even more evidence of tightness in labor markets. 2.) There seems to be a shift in the mix of employment as those being laid off from higher paying tech and industrial sectors are being absorbed by the lower paying service sectors, namely leisure and hospitality. In some ways, this shift in the labor force is good news for the Fed in that labor supply is being directed to the service sector where wage inflation has been running high. Year-over-year wages fell to 4.4% vs. 4.6% prior, a move in the right direction to cool wage inflation, but still too high for the Fed's comfort. Nevertheless, the market will need to rebuild the risk premia that the Fed may still have a lot of work to do after seemingly being assured the Fed was near done based on comments from the Fed meeting." – Jim Caron, co-chief investment officer of Global Balanced Funds at Morgan Stanley Investment Management
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"It is encouraging to see a strong jobs report amid recession concerns and continued layoffs in the tech industry. A stronger jobs market, in tandem with last week's positive GDP growth rate announcement and signs of slowing inflation, will likely ease market volatility. We expect the unemployment rate to remain below the natural rate of 4.5% in 2023. Still, we will continue to pay particular attention to factors that could impact the jobs market, such as further interest rate hikes, inflation and geopolitical issues." – Steve Rick, chief economist at CUNA Mutual Group
"While the Fed's medicine has been working, as inflation has dropped sequentially over the latter part of 2022, the biggest challenge for the Fed has been the tight labor market. This extraordinarily strong number may very well prompt the Fed to continue to hike rates, or at best take a longer time before cutting them. The markets have had a strong rally in January with hopes that the Fed is close to concluding its hawkish program of higher rates – this is certainly a setback. It is ironic that so many large companies have announced significant layoffs (FedEx, Amazon, 3M, Google, etc), yet the jobs market continues to grow and tighten, as small business continues to hire at a strong pace." – Eric Diton, president and managing director of The Wealth Alliance
"The 517,000 jobs number was a massive upside surprise from the average estimate. The highest estimate was 320,000 jobs. Average hourly earnings were down slightly month-over-month at 0.3% and down year-over-year from a revised 5.0% to 4.4%. The employment numbers point to a soft landing. The Fed should be pleased that the labor-force participation rate ticked up, to 62.4% from 62.3%." – Eric Merlis, managing director, co-head of global markets at Citizens Bank
"The unusually few layoffs that translated into such a strong headline gain is indicative of what remains an incredibly strong jobs market, and other details of today's report underscored this strength. Benchmark revisions increased the level of employment over the past couple years and showed stronger hiring momentum heading into 2023. At the same time, the unemployment rate fell to 3.4%, the lowest reading since 1969. Average hourly earnings growth remained solid and registered a 4.6% annualized rate over the past three months. We suspect members of the FOMC will be cautious in reading too much into the magnitude of January's payroll gain, but the firm pace of average hourly earnings growth and a 53-year low in the unemployment rate should keep a 25 bps [0.25%] rate hike at the March 22 FOMC as the base case and another possible increase in May in play." – Sarah House, senior economist at Wells Fargo Economics
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