People who bet on a slowdown in the U.S. job market lost again last month.
The economy added 353,000 jobs in January, the Bureau of Labor Statistics said Friday. That’s nearly double what economists expected and well above the already-respectable monthly average of 255,000 for 2023. Wages also grew a stronger-than-expected 4.5%, and the jobless rate stayed in a tight range at 50-year lows.
“The labor market is the little engine that could,” said John Leer, chief economist at the business intelligence firm Morning Consult.
The White House leaned into the numbers, as President Joe Biden seeks re-election this year. Officials view the data as vindication of Biden’s policies, such as passage of the Inflation Reduction Act and investments in semiconductors and science. Jared Bernstein, chairman of the president’s Council of Economic Advisers (CEA), called the report an “unequivocal story” that is good for the overall economy and working families.
“With easing inflation, we’ve now got wages handily beating prices, meaning more buying power,” Bernstein told reporters after the report was released Friday. “This is at the heart of a very virtuous ongoing cycle where the tight job market, strong job gains and wage growth outpacing price growth is consistently boosting consumer spending.”
To be sure, while consumer sentiment has improved recently, approval of the president’s handling of the economy is low.
The overall strength in the job market also complicates the work of the Federal Reserve, which has raised interest rates to tamp down inflation. With the economy still strong, the central bank will likely wait longer to cut rates, delaying relief for consumers saddled with high credit card balances and mortgage rates.
“There is absolutely no sign of a softening labor market or weakening wage pressures,” says Seema Shah, chief global strategist for Principal Asset Management.
Still, White House economic advisers hope a sustained period of strong wages and slowing inflation will help household budgets and continue to show up in improving sentiment indicators.
Likewise, Leer thinks strong jobs growth, rising wages and falling inflation make the outlook for consumer spending this year “encouraging.”
“So encouraging that it feels less appropriate to cut interest rates before seeing some evidence of a moderation in economic activity,” he said.
Indeed, the cooling that economists and CEOs had forecast hasn’t materialized. On the contrary, the January jobs report shows an acceleration in hiring. The government also revised December’s report higher, bringing the two-month job gain to nearly 700,000.
“The dramatic upside surprise to both jobs and wage growth means that a March rate cut must be off the table now, and a May cut is also now potentially on ice,” said Shah.
The CEA’s Bernstein, in turn, noted that the Fed’s favored measure of inflation has fallen to a key point.
“If you look at the core PCE [personal consumption expenditures], it’s trending at 2% for the last six months of last year. So that is very consistent with the easing inflation story that we’ve been focused on here,” he said.
Still, advisers are keenly aware of higher grocery bills hurting the consumer’s psyche. Inflation rates may be slowing, but price levels are still higher today than before the inflation surge, something that until recently may account for poor sentiment and poll numbers for Biden.
Meanwhile, his likely GOP challenger in November, former President Donald Trump, has begun to test out his rebuttal to the recent run of strong economic news.
On Fox Business on Friday, he said the stock market is at record highs because investors “think I am going to get elected.”
He also downplayed a so-called soft landing in the economy, predicting a spike in oil prices because of unrest in the Middle East that he says could reignite inflation. He also said he would not reappoint Jerome Powell as Fed chief, saying if the central bank cuts interest rates, it will help Democrats.