U.S. economy added 467,000 jobs in January
The U.S. economy added a record-setting 467,000 jobs in January, showing signs of strong economic recovery. KPMG Senior Economist Ken Kim provides his three takeaways from the January report.
KPMG Senior Economist Ken Kim discusses his three takeaways from the January jobs report.
January’s surprising jobs report may be a sign of brighter days ahead
Although economists and the public were bracing for a disappointing employment report due to Omicron’s destructive path, the outcome was substantially better than expectations with employers filling 467,000 jobs.
Some sectors saw particularly strong numbers. Despite the exceptionally tight labor market and some industries experiencing the Great Resignation the leisure/hospitality and retail industries both saw their strongest jobs gains in months, rising by 151,000 and 61,000, respectively. Indeed, the January report could have been even stronger if the nation hadn’t been faced with Omicron.
More good news
The encouraging outlook doesn’t stop with headline job gains.
- Revisions to the job gains for the last two months of 2021 resulted in substantially higher employment growth than previously reported– 709,000 in total. This is an indicator the jobs market is running hotter than economists previously thought and entering 2022 with stronger momentum.
- Wage growth also accelerated with average hourly earnings rising 5.7% y/y in January. Wage gains spanned all industries with only leisure/hospitality and wholesale trade showing slight decelerations. The reduced showing for leisure and hospitality was likely driven from reduced hours due to Omicron.
Another positive development is that the higher wages companies are offering looks to be drawing people back into the labor force. Indeed, labor force participation rose by 0.3 percentage points to 62.2%, the largest increase in Labor Force Participation Rate since June 2020. And, while the unemployment rate ticked up slightly from 3.9% in December to 4.0% in January, this likely resulted from a lag between people re-entering the labor force and the pace at which they could be absorbed and find jobs. Additional gains in the participation rate would be a welcomed development and would help alleviate labor shortages and wage pressures going forward. Whether this unfolds will be a key storyline in 2022.
The US labor market is getting off to a fast start in 2022. This means economic agents will need to recalibrate their expectations when it comes to interest rates, additional rate hikes by the Federal Reserve, and higher bond yields. On the fiscal front, the child tax credit ended in December and supplemental unemployment insurance benefits ended last September. This combination of factors raises a question: Can the economy handle policy normalization from both a fiscal and monetary perspective? We believe the answer is a resounding yes. The bottom line is that a healthy labor market, elevated inflation, and rising interest rates can all coexist in 2022.