fb-pixel Skip to main content

The US added a stunning 517,000 jobs in January, but that number may not be as good as it seems

A hiring sign was displayed at a Chipotle restaurant in Schaumburg, Ill., on Monday.Nam Y. Huh/Associated Press

WASHINGTON — The labor market roared into the new year, adding a stunning 517,000 new jobs in January, but the unexpected surge might look better than it actually is as the economy still could be headed for a mild recession this year.

The report Friday from the Labor Department showed broad-based job gains that were almost double those in December and nearly triple what analysts were expecting after several months of slow growth. The unemployment rate ticked down to 3.4 percent, the lowest since before the first Moon landing in 1969.

The new numbers show the job market continues to perform well in the face of the lingering pandemic, high inflation, and a wave of high-profile layoff announcements by major technology companies. But economists frequently warn not to read too much into one month’s data, and some said that’s particularly the case with January’s surprising job growth.


The Labor Department makes adjustments to its jobs calculations each month that attempt to account for seasonal hiring trends and other factors, but the pandemic has wreaked havoc on that process. Skewed seasonal adjustments likely inflated the numbers for January, as did other factors, including the return of striking university employees in California and unseasonably warm temperatures in much of the country that boosted hiring in some weather-dependent sectors, such as construction, said Mark Zandi chief economist at Moody’s Analytics.

Listen to Globe reporter Jim Puzzanghera on the latest jobs report:

“The [job] market is strong, there’s no doubt about it. It’s not nearly as strong as today’s numbers would suggest,” he said.

Tepid wage growth was one indication the January job numbers were inflated. Average hourly earnings increased by 0.3 percent from December and 4.4 percent from a year earlier. That showed growth in wages was moderating — the year-over-year figure is the lowest since the summer of 2021. Such a trend would be at odds with a red-hot labor market creating more than half a million jobs a month.


Although Zandi expects January’s job figures to be revised down significantly in subsequent Labor Department reports, he said they still show the jobs market remains sound. And that’s good news for workers and for the economy as it tries to stave off a recession that could be triggered by rising interest rates to battle high inflation.

“There had been some hand-wringing that the economy was really struggling at the end of last year coming into this year and I even heard some folks think we’re already going into recession,” Zandi said. “This should put that fear to rest.”

Strong job growth also is good news politically for President Biden — even though it could lead to more aggressive rate hikes by the Federal Reserve that risk choking off the investments needed for job growth. He hurried in front of the cameras at the White House on Friday morning to tout what he called the “strikingly good news,” which included the Labor Department revising its figures for all of 2022 upward by an additional 311,000 jobs.

“Next week, I’ll be reporting on the state of the union. But today, I’m happy to report that the state of the union and the state of our economy is strong,” Biden said, flanked by his top two economic advisers and standing in front of a backdrop that read, “Jobs for Americans.”

“For the past two years we’ve heard a chorus of critics write off my economic plan,” the president added. “Well, today’s data makes crystal clear what I’ve always known in my gut: These critics and cynics are wrong.”


President Biden walked across the South Lawn as he left the White House on Friday. Manuel Balce Ceneta/Associated Press

Fears of a looming recession were high last year, with slowing economic growth and job cuts throughout the technology sector, including from giants such as Google, Facebook, and Microsoft as well as smaller companies. But in the last quarter of 2022, the economy grew at a solid 2.9 percent annual rate, easing some of those concerns.

Bernard Baumohl, chief global economist at Economic Outlook Group, a forecasting firm, attributed the tech industry layoffs to adjustments by companies after a pandemic surge in demand had eased, rather than a warning that the broader economy was weakening.

“Anybody that was laid off by one of the big technology companies, I think they will easily get four or five offers from other companies right now because they have the skills that are really most in demand,” he said. That’s been reflected in other recent data, including a historically high number of job openings — more than 11 million in December — and historically low numbers of people applying for unemployment benefits.

The biggest gains in the labor market in January were in the leisure and hospitality sector, which added 128,000 jobs, double December’s number. Manufacturers added 19,000 jobs, up from 12,000 in December. Governments added 74,000 jobs after a net loss of 9,000 positions in December. A major factor there was the end of a strike by about 36,000 University of California employees. That’s almost exactly the number of state government education jobs added nationwide in January.


Construction companies also added jobs, that while fewer than in December were higher than typical in winter because warmer weather allowed more work. Retailers increased payrolls by 30,100 jobs after a gain of just 1,400 in December.

The retail gains show how the pandemic-skewed economy could have complicated Friday’s report. The Labor Department has formulas that try to account for typical seasonal hiring trends, but unforeseen factors can artificially inflate or understate the monthly numbers.

The holiday shopping season began earlier than normal last year as retailers discounted items in the fall due to bloated inventories in some products, like home goods, that had been in high demand during the peak of the pandemic, when so many people were working from home.

“People did a lot of their Christmas buying early, kind of October, November, and that pulled from December,” Zandi said. The shift meant less temporary holiday workers were hired in December so there were fewer of the normal layoffs in the sector in January, which factored into the big gain in retail jobs, he said.

In addition, companies are worried they won’t be able to find new workers with so many job openings so they’re more likely to hold onto the workers they have, said Diane Swonk, chief economist at audit and consulting firm KPMG.

Still, the continued strength of the labor market — even if it isn’t as strong as January’s report makes it seem — complicates the work of the Fed to lower high inflation. Fed officials have been raising interest rates since last March to try to dampen demand and push price growth closer to normal.


The Fed’s effort has been working as the consumer price index has been declining from 9.1 percent in June — a four-decade high — to 6.5 percent in December. With price growth moderating, Fed officials eased their pace of interest rate hikes on Wednesday, announcing just a quarter percentage point hike.

Fed Chair Jerome Powell said Wednesday the central bank’s work on inflation was not finished and indicated more rate hikes are coming. The job numbers from January could motivate the Fed to accelerate its campaign, which would raise the risk of a recession. But there’s still another monthly employment report coming before the Fed makes its next decision on rates in late March.

Swonk said the unemployment rate is calculated differently and is at an accurate — and historically low — level. With so few people needing jobs, companies have to compete for workers and that could push wages up and make it harder to return inflation to normal.

“At the end of the day, we’re still at a 3.4 percent unemployment rate and that’s just glorious,” Swonk said. “But it’s a blessing and a curse.”

Jim Puzzanghera can be reached at jim.puzzanghera@globe.com. Follow him on Twitter: @JimPuzzanghera.