January Jobs Report: Hiring Excels As Economy Finds Balance

The U.S. economy in January added 335,000 jobs, according to the Bureau of Labor Statistics—a number that doubled initial estimates.

The largest job growth happened in education and healthcare (+112,000 jobs), professional services (+74,000), and retail (+45,200). The unemployment rate remained at 3.7%.

“The January jobs report is a positive signal for the U.S. economy as we look ahead this year,” said Chi Nguyen, Insight Global Chief Financial Officer. “With interest rates expected to come down in line with inflation stabilizing, this all could translate to improving consumer and business confidence that the overall economy is actually quite healthy.”

Some other important economic data released in January include:

• The Federal Reserve held interest rates at their current level after their January meeting. They indicated that they likely wouldn’t start cutting rates in March, either.
• Core Personal Consumption Expenditures (PCE) inflation over the last six months is under 2%, and year-over-year inflation in December 2023 was under 3%.
• Hourly earnings rose 0.6% from December to January and have risen 4.5% over the last 12 months.
• Productivity rose by 3.2% in Q4 of 2023, but hours worked rose by just 0.4.
• The payroll powerhouse ADP reported just 107,000 job gains in the private sector—50,000 below estimates in their announcement this week.
• There were nine million job openings in December—similar to previous months but still low compared to previous years.
• Layoff rates were 1.0%—average in the pre-pandemic economy—for the fourth month in a row.
• Quit rates remained low at 2.2%—a rate continuing to indicate in less voluntary churn in the job market.

Diane Swonk, the chief economist at KPMG, noted when speaking to NPR that the job gains can be attributed to companies’ ability to “hold onto workers much longer than they did in the past.” Layoff rates and quit rates are both down, and both workers and companies are holding onto each other. She pointed out that the largest job gains in 2023 came in January, too.

“Businesses have got to hold onto talent,” Nguyen emphasized, especially as “it looks like the Fed will continue to have the wait-and-see approach on interest rates.”

Today, we’ll focus on three important areas of the labor market that deserve some time: Wages, hire and quit rates, and productivity.

Wages

Hiring has generally cooled over the last year. The six-month average of jobs gained in January 2024 (248,000 jobs) is lower than it was in January 2023 (289,000 jobs). Inflation has, too, with rates half of what they were at their peak in 2022. But wages are still trickling behind both of those metrics.

Over the last year, wages increased 4.5%—a percentage point higher than inflation over the same period. Wages grew 0.6% in January, too, after a couple months of cooling growth.

But Jerome Powell, the chairman of the Federal Reserve, said that he doesn’t see this as a concern. “The economy is broadly normalizing, and so is the labor market,” he said, noting that wage increases returning to more “normal” levels will take “some time.” It “probably will take a couple of years to get all the way back. And that’s okay.”

Hire and Quit Rates

Powell has indicated that tightening the labor market was important for the Federal Reserve. That appears to have happened. Hire rates are as low as they’ve been in a decade, and workers are quitting their jobs less frequently than they have since 2018.

“It’s not an employee-driven labor market anymore. It’s tipping back to the employer,” Nguyen said, highlighting the decrease in the ratio of job openings. Between March through August of 2022, we peaked at two job openings per job seeker. That’s now decreased to 1.4 job openings per job seeker—a 30% decrease. “Employers now have an opportunity to be more discerning about who they’re going to hire.”

But as the January jobs report indicates, the market isn’t too tight. Unemployment remains low, and jobs are still being added to the economy.

“As labor market tightness has eased and progress on inflation has continued, the risks to achieving our employment and inflation goals are moving into better balance,” Powell said this week.

Productivity

After a down first quarter, productivity showed stable growth over the last three quarters of 2023. The stability mirrored what productivity looks like in 2019 before the COVID-19 pandemic. Nguyen said productivity is an extremely important metric to follow. Continued positive productivity could increase business confidence in future investments, especially as businesses reap the benefits of their productivity measures taken over the last several quarters and shift their investments back to top line growth.

Jerome Powell indicated after questioning from reporters that productivity in 2023 could be a primary reason the U.S. economy grew so strongly while inflation also normalized. He did say, though, that productivity “falls out of the broader forces that are driving people in and out of the labor force.” But it’s hard to argue that greater productivity doesn’t stem from quit rates, layoff rates, and people generally staying at their job longer. People typically get better and more efficient at their jobs the longer they are in them.

Meta CEO Mark Zuckerberg noted in his Q4 earnings call that, after the company instituted layoffs in late 2022, the company got “leaner” and was able to “execute better and faster.” The company slowed down hiring in 2023, and the general economy indicates far less people were quitting their jobs (for other jobs). Meta then reported greater productivity and higher revenue at the end of the year. So, while productivity may not be a direct factor causing people to start or leave jobs, it could be a downstream indicator highlighting the results of economic policy.